Beijing’s Entry Into Sanctions Game Puts Pressure on Washington

By placing sanctions on two of America’s largest defense companies, Beijing is signaling that it, too, can play a game long used by America. With Communist China’s economic clout growing, Washington will need to rethink its overreliance on the use of sanctions to confront global enemies. Beijing announced it would add Lockheed Martin and Raytheon Technologies to a list of “unreliable entities.” It sanctioned the two American companies as punishment for their sale of arms to Taiwan, according to a Chinese ministry of commerce statement.While shares of the two companies dipped in financial markets in the immediate aftermath of the Thursday announcement, harm is widely expected to be negligible. Lockheed Martin, the world’s largest defense company, sells nothing to Communist China. Nor does the Raytheon missile and defense subsidiary that was targeted by Beijing. Yet, as Chairman Xi strives for his country to leap over America as the world’s top economy, the signal was noticed in Washington. Even as defense budgets have shrunk, American presidents have relied on sanctions increasingly to punish enemies, but the prospect of Beijing imposing counter-sanctions might open a new front in a growing rift. Sanctions weren’t favored by America until the 20th century. That view changed as the Cold War intensified, and the use of sanctions rose in prominence once it ended. The first Iraq war and its aftermath placed the United Nations Security Council at the center of American-led sanction regimes. At their most effective, though, the restrictions — whether America and allies impose them on countries, alliances, commercial entities, or terrorist organizations — are accompanied by secondary sanctions. These are an instrument that punishes non-sanctioned entities that nevertheless violate sanctions. When President Trump walked away from the 2015 Iran nuclear deal, he reimposed unilateral sanctions on the Islamic Republic, including a ban on its oil exports. Those sanctions worked well as long as America denied access to dollar-based transactions to anyone buying Iranian oil.These secondary sanctions were effective in drying up Tehran’s oil income even while the UN Security Council declined to join America in globalizing the sanctions. Conversely, once the Biden administration eased the secondary sanctions and potential buyers no longer feared denial of access to dollar-based banking, Iran’s oil sales resumed even as American sanctions remained intact. Mr. Biden imposed sanctions on Russia for its Ukraine invasion, but mostly declined to back them with secondary sanctions. “If we had a full-blanket secondary sanctions on Russia today, allies would have to choose,” the director for countering Iranian weapons of mass destruction at Mr. Trump’s national security council, Richard Goldberg, told the Sun.Without such a choice — telling entities that if they do business with Moscow they’re going to be denied access to American currency — sanction enforcement weakens significantly. America’s sanctions regimes therefore depend largely on the mighty dollar’s longevity as the world currency. The dollar’s primacy was established in the 1944 Bretton Woods agreement with Canada, most of Western Europe, Australia, and Japan. It was further bolstered by a pact America made with Saudi Arabia in the aftermath of World War II, which turned the U.S. denomination into the common currency of energy markets. Early in his presidency, though, Mr. Biden moved to isolate Riyadh and centered his “human rights-based” foreign policy in it. As a result, the Saudis now are rethinking their global alliances. In mid-December Mr. Xi visited the kingdom, where he met leaders of the top energy-producing member countries of the Saudi-led Gulf Cooperation Council. Mr. Xi attempted to impress on them the benefits of getting paid in yuan as they sell their wares to China, the world’s top energy importer. Move over, petrodollars, some observers of Mr. Xi’s trip said. The ambitious Beijing leader’s talks in Riyadh marked “the birth of the petroyuan,” a Credit Suisse analyst, Zoltan Pozsar, was quoted as saying by the Soufan Center.In an IntelBrief, the Soufan Center noted that three sanctioned countries that account for roughly 35 percent of the world’s proven oil reserves, Russia, Iran, and Venezuela, already sell oil to China at a discount — and in yuan.Would the Chinese currency, then, end the dollar’s global dominance anytime soon and significantly harm America’s ability to level painful sanctions on its enemies? “That’s a pipe dream,” Mr. Goldberg says. Even with China’s rise, the emergence of cryptocurrency, inflationary pressures, and other economic setbacks, once dollar-based transactions are threatened, he says, “you’re always going to choose the U.S.”The Constitution and a strong rule-based system project America as a more dependable guarantor of financial stability, whereas much of what happens in Communist China depends on the whim of a ruler: Two years of Mr. Xi’s “zero Covid” policies have forced many yuan enthusiasts to flee back to the dollar. Yet, China is the world’s second-largest economy, and Mr. Xi is intent on surpassing America. At the same time, as Americans shy from projecting military might, sanctions dominate the national security toolbox even while Washington’s shrinking defense budgets fail to compete with Beijing’s. “Over-reliance on sanctions is unsustainable,” Mr. Goldberg says. “Viewing sanctions as the end state of policy and not one tool in a broad strategy is problematic. The right balance is maximalist sanctions and maximum deterrence.”

Beijing’s Entry Into Sanctions Game Puts Pressure on Washington

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