China has not been heavily targeted by US financial sanctions in recent years. But bipartisan pressure is growing in the United States in support of new financial sanctions on Chinese firms and individuals to counter Beijing’s human rights abuses and suppression of prodemocracy supporters in Hong Kong. Unlike existing US sanctions, new restrictions against China risk hitting some of the world’s largest banks, with wide-ranging consequences for the US dollar and international financial markets. US officials should carefully assess the costs and benefits of escalating sanctions against major Chinese financial institutions and also consider other measures that could effectively respond to Chinese policies.
US sanctions already target a broad array of countries. The US list of Specially Designated Nationals and Blocked Persons (SDN) catalogs people and firms engaged in terrorism, cybercrime, human rights abuses, nuclear proliferation, narcotics trafficking, and other illicit activities. When a firm or individual is placed on the SDN list, their assets held in US jurisdictions are frozen, and they face US visa restrictions and bans on dollar-based transactions. Iran, Syria, Ukraine, North Korea, and Russia have been prominent targets of recent US sanctions.
But China’s role in international markets is much bigger than the role of other targeted countries. Hitting major Chinese financial institutions with sanctions could impair US trade and investment interests and influence. Financial sanctions should, therefore, be employed with caution. Other measures are available to advance US interests and oppose abusive foreign practices, such as visa restrictions and subsidies to US high-tech firms. Such alternatives could better align the expected benefits from changes in Chinese policies with the potential costs to US firms and international financial markets.
This PIIE Chart was adapted from Jeffrey J. Schott’s Policy Brief, “Raising a caution flag on US financial sanctions against China.”