The United States has pursued sanctions from two main avenues: sanctioning companies and individuals for human rights violations and sanctioning companies on grounds of national security. Both options have hit some of China’s critical technology development (specifically supercomputers and telecommunications) and key political figures. Has this been effective in changing Chinese behavior in the short term?
As with everything with China, the answer is yes and no. The intended objectives of the sanctions as a part of an overall strategy, has been to put enough punitive pain on China that it shifts its broader direction on a given policy. If we look at Xinjiang the campaign of oppression has ratched up and spread to Tibet. In the case of Hong Kong, Beijing has not relented to the demands of the protesters and we have seen them push through an extraordinarily broad national security law this year. Even in the wake of and passage of the Hong Kong Human Rights and Democracy Act, there is no indication that China is going to shift trajectory at all. If the objective of sanctions is to make a more fundamental directional change, then no, they have not had any effect. However, looking more narrowly, they are having more of an effect. A lot of the actions the U.S. has taken on these more concerted issues like Hong Kong and Xinjiang, are having more impacts on company decision-making and supply chains, specifically where companies are deploying capital and investments. Beijing is now doubling down on “indigenous innovation” or what Xi Jinping calls “self-reliance”, which is essentially stating that the global economy is increasingly hostile and dangerous. China is going to try and do as much as they can themselves, so more and more capital is being channeled into China’s own production capabilities. So, yes in that sense, those actions are having an effect.
The current administration has created an entity list for Chinese semiconductor and supercomputer manufacturers. Companies such as Huawei have been under scrutiny and a number of defense reports cite unreliable and nonsecure telecommunications infrastructure and technology that can be exploited. Recently, the United States has offered incentives for countries, specifically developing countries, to not use Chinese telecommunications infrastructure. Does this funding incentive approach represent a more effective approach?
It depends on what you want to do. Obviously the United States is capable given its inordinate power and influence over the global economy to pass a death sentence on Huawei. It can choke off companies from selling core components to Huawei and we have seen that recently. It depends on whether you are trying to kill Huawei or outcompete Huawei. Providing financing on competitive products for companies to purchase Nokia and Ericsson 5G equipment is more about outcompeting Huawei rather than killing it. I think a more sustainable policy for the United States is to run faster and make China run our race rather than having a defensive posture that is about killing individual Chinese companies for a couple of reasons. First, if we have a company specific strategy- a Huawei strategy, a TikTok strategy- we will constantly be playing whack-a-mole as new firms arise in critical infrastructure, national security, and technology industries. A better approach would be what Robert Gates calls “small yard, high fence.” This means we are going to have key areas we protect and have a defensive infrastructure, regardless of the firm being Chinese, Israeli, or European, we are protecting our own national security. However, our shoulder is going to be put into running faster, running a better race. One of the things China does really well is leverage a surplus of capital and investment to induce or incentivize countries to buy goods and services from Chinese companies. That is in a sense what we are trying to do when we are pushing for the U.S. EXIM Bank to be making these loans. This is a part of trying to run faster in China. One final thought is that we will never have the excess amount of liquidity and capital that China has to be able to match their capital under state-controlled banks. What we also need to be doing is creating new ways that we are leveraging U.S. power that is conducive and comports with our own financial and fiscal realities and aligns with our system of values so that we can offer better alternatives than Huawei.
How does America’s sanction offensive affect Xi Jinping’s Vision for the country- you mention in your report the new development concepts as well as Jinping’s plan 2050 plan for China with long term development and strategic goals- do these actions by the United States significantly hamper their ability to do so or achieve these goals?
I think it does- the question becomes “Are these enduring, sustainable policies we are putting into place and do they comport with our system of values?” The United States has long been the champion of an open, institutionalized international economic order. We deal with conflict and friction through multilateral institutions rather than a bilateral ad hoc way. If this is the way we are going to conduct financial warfare, then this is a fundamental shift and contributes to the erosion of a rules-based order as countries think they have to stand up for themselves. Yes, this has an impact on China. They hate that their companies are having trouble accessing talent, technology, and capital. It represents a fundamental threat to their operations. The question becomes “At what cost to us?”.
How is Chinese government responding to American sanctions against their entities and individual leaders?
Since the wake of the Tiananmen Square Massacre in 1989, China has been under the belief that the United States has an active containment policy to thwart China’s rise. For a long time it was the job of U.S. politicians and diplomats tried to assuage those fears. Obviously that is a little bit harder to maintain right now. I think it is fairly out in the open- if you look at speeches by Attorney General Barr, Secretary of State Pompeo, and National Security Advisor Robert O’Brien, it becomes clear that this administration has a regime change strategy or certainly a containment strategy. If there were elements in China that were arguing that the United States does not have a containment strategy, that becomes very difficult to argue right now. I suspect that China will see, even with a Biden Administration, that a containment strategy is the new reality of this bilateral relationship.
If there is a new administration in 2021, are we going to see a significant change in the use of sanctions against China for human rights abuses, intellectual property theft, or in the race for advanced technology?
I think it is going to be balancing a few things. Clearly, a Biden administration will not have the same desire to push the bilateral relationship to the edge as the current one does. On the other hand, it is clear we have reached a more permanent shift in how the United States thinks about its relationship with the Xi administration- not China per say, but the Xi administration. As long as Xi is in power we will see a more rivalrous relationship between the two. I think the difference between a Biden and Trump administration is that the Biden administration will be trying to push and shift Chinese behavior on some of the more controversial and problematic elements of their political economy. But, it will also clearly still try to push for cooperation on a range of issues from public health to climate change. There will be a new threshold where we will see new competition, but with a Biden administration will seek more cooperation than a Trump administration.
Does China have a similar set of tools at their disposal to influence American behavior? Are their critical industries that China is eyeing right now?
You are seeing much more aggressive rhetoric from China on punitive actions it would take on against U.S. companies and individuals. It has created a list of new punitive actions such as its own unreliable entities and re-vamped export controls. China is definitely recognizing that the relationship with the U.S. is shifting and it's going to need to create its own mechanism for pushback. Until today though, it has been relatively cautious about taking these actions for two reasons. First, it needs foreign direct investment (FDI) and second it does not want to lose the business community in the United States. Many of these mechanisms have been created as threats for the U.S. government rather than actions taken to penalize U.S. companies, which it doesn’t want to do but would if backed into a corner.
The memo proposed by CSIS stated using targeted sanctions as a potential mechanism to influence China’s behavior in Hong Kong- the literature on sanctions is mixed- broad based sanctions are often criticised for non-effectiveness and having little effect on targeted entities or individuals. Does this apply to developed countries like China? How specific or well-tuned do you envision sanctions needing to be in the Chinese case?
We need to get out of this idea that sanctions are our only tool or primary tool of raging great power competition. Sanctions are the easy answer that everyone is coming up with- they are there and we have the power to do them, but it is asking the wrong set of questions. Sanctions is one of many tools the United States has, both stick and carrot, that it can wield against China. Right now every problem we face with China, we wield the sanctions stick. You are going to have diminishing returns on those if that is all we are using. Oftentimes it is hard to understand the second and third order impact or unintended consequences of those. The more we yield sanctions, it is causing even our allies to think about how they can get out of the line of fire. My answer would be that we need to broaden our China strategy beyond this narrow thinking, creating more sticks beyond the one big club we have and leveraging more carrots.
It comes down to whether you want to spend time running the race faster or tripping your opponent. I believe this is why it is so helpful to study the Cold War now because we had a pretty robust toolkit including information warfare, deep investment into our own economic system, and scientific research. We were doing a lot on a number of different fronts, but the Cold War was not sanctions. Partly, it was because the Soviet Union was not as integrated into the global economy as China. However, looking at the ways we outcompete China will be as devastating in the long run to China’s geostrategic goals as the more short-term approach.
U.S. Government., Public domain, via Wikimedia Commons