US lawmakers are debating a variety of issues. new economic state authority It aims to manage strategic competition with the People's Republic of China. Congress should quickly take certain measures, including: Risky capital flows outside the United States It would be a mistake for China to call for the complete exclusion of Chinese companies from the global financial system.
The United States enjoys a strong set of environments. policy tools For imposing national security-based restrictions on economic activities with China. This includes export controls that stem the flow of sensitive technology, tariffs, and, in some cases, restrictions on the ability of Americans to engage in financial transactions with their Chinese counterparts. Of these, financial restrictions have been applied at a relatively low level, considering the scale of the policy challenges that the United States has with China.
One of the economic tools that is largely absent from discussions of China is List of specially designated nationals and prohibited persons, which is the most severe form of financial sanctions. Once placed on the list, all U.S. assets of the designated person would be frozen and U.S. persons would be prohibited from doing business with that person.
Given the dominance of U.S. banks and the U.S. dollar throughout the global financial system, this designation makes it extremely difficult for anyone around the world to legally do business with the designated entity, and therefore the “nuclear option” ” is often called.
Even though the US has gave the designation to Chinese nationals In certain cases (such as responding to human rights abuses in Xinjiang and Hong Kong, and aid to Iran), it has largely refrained from using this tool to manage broader strategic competition with China.
Some people advocate changing this.bipartisan China Military Surveillance Enterprise Sanctions Law of 2023The bill, which recently passed the House Financial Services Committee unanimously, advances to grant Special Designated National status to a list of Chinese companies with ties to the People's Liberation Army. The other parliamentarians called Seeking the designation of Huawei and China Semiconductor Manufacturing International Corp., expanding the current approach of prioritizing technology regulation over financial sanctions.
Supporter They argue that the United States needs to take a tougher stance toward China and express legitimate concerns about the growing economic and national security risks posed by China. But reaching for the nuclear option now costs the United States critical coercive power, which may be needed even more in the future.
recent research A report released by the Center for a New American Security shows that the United States' options to sanction China in the event of a conflict are severely limited. One area where the United States enjoys a clear advantage is in financial sanctions, but the need for concerted action with allies and China's ability to develop alternatives to the U.S.-dominated global financial infrastructure. Growth complicates even this advantage.
To maximize the power of US financial sanctions, the US should continue to deeply integrate China into the current structure of the global financial system, rather than strengthening China's incentives to flee.Even in today's tense geopolitical situation, China Most of those transactions and hold Most of the foreign exchange reserves Denominated in US dollars. China's dependence on the US dollar serves as both a lever and a deterrent, and it is in the United States' interest to maintain both.
A further argument for restraint now is that the list of specially designated nationals is escalatory in nature. Recent incidents such as China's reconnaissance balloon flights over the United States technology sanctions These days, the amount is about 10 cents, but instead of imposing sanctions on specially designated nationals, it could have prevented a spiral of worsening relations. A shift in US policy towards more frequent designations risks triggering widespread sanctions retaliation, something China has indicated it will actively engage in.
Advocating restraint in financial sanctions does not justify inaction, and there are important steps Congress should take now.
First, you should see a significant increase. resource This will enable the Departments of State, Commerce, and Treasury to prepare for future sanctions scenarios involving China, maximize the effectiveness of economic tools, and promote the integration of economic options in interagency planning efforts. Masu.Congress should also pass it. new authorities Bans certain U.S. investments in China in critical technology areas to complement U.S. export control objectives.
Sanctions against specially designated nationals may amount to a whack-a-mole approach due to the specific nature of the actors, and are an insufficient substitute for a long-term strategy to prevent the flow of critical technology and know-how to China.
Congress should also require the administration to identify specific triggers that justify the use of the designation. There may soon come a time when the United States will need to unleash the most powerful tools in its economic arsenal, such as if the security situation around Taiwan deteriorates. Financial sanctions can play an important role in imposing costs on China for acts of aggression, but they must be carefully planned in advance, integrated with military and other sector options, and closely coordinated with international partners. limited to cases where
If tensions with China worsen, calls for restraint could weaken. However, now is not the time to impose harsh financial sanctions on China.
Emily Kilcrease is a senior fellow and director of the Energy, Economics, and Security Program at the Center for a New American Security.
John Hughes is an adjunct senior fellow in the Energy, Economics, and Security Program at the Center for a New American Security.
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