What is the Difference between Sanctions against China and Sanctions against Russia?

Pyongyang's testing of nuclear weapons naturally caused debate about a possible further response. It is expected that the UN Security Council will again condemn nuclear tests as it unanimously criticized the recent missile launches. However, current events reveal contradictions between key players. Chinese and Russian companies have already been subjected to US sanctions for their ties with North Korea. The Americans want to force China and Russia to show great energy in pressure on North Korea and consider sanctions against them as one of the key measures. The further escalation from Pyongyang risks causing unintended consequences - escalation of Washington's sanctions policy against Beijing and Moscow. This will complicate the interaction on the Korean nuclear missile problem. More importantly, the mechanism of the growing confrontation between the US and the PRC will be activated. This turn still has rudimentary forms. However, the consequences can be global. How likely is the escalation of US sanctions? What is the difference between sanctions against China and sanctions against Russia? How far will Washington go? However, China is not Russia. Imposing sanctions, Americans will really have to think twice. First, the level of interdependence of the two economies is great, in contrast to minimal economic ties with Russia. All these arguments would probably force the Americans to limit themselves by pinpointing at some companies or individuals, as it was done in August by the US Department of the Treasury. However, there is an important factor of uncertainty - President Donald Trump himself. His political energy and a special attitude towards China can very well lead to more serious sanctions with the subsequent domino effect. It is difficult to say now what the consequences may be. But the solution to the North Korean nuclear missile problem will be completely stalled.

Pyongyang's testing of nuclear weapons naturally caused debate about a possible further response. It is expected that the UN Security Council will again condemn nuclear tests as it unanimously criticized the recent missile launches. However, current events reveal contradictions between key players. Chinese and Russian companies have already been subjected to US sanctions for their ties with North Korea. The Americans want to force China and Russia to show great energy in pressure on North Korea and consider sanctions against them as one of the key measures. The further escalation from Pyongyang risks causing unintended consequences - escalation of Washington's sanctions policy against Beijing and Moscow. This will complicate the interaction on the Korean nuclear missile problem. More importantly, the mechanism of the growing confrontation between the US and the PRC will be activated. This turn still has rudimentary forms. However, the consequences can be global. 

In Russia, the recent appearance of Russian individuals and companies that, according to the US Department, cooperate with North Korea on nuclear missile issues, in the US Treasury blacklist (Specially Designated Nationals and Blocked Persons List) remained virtually unnoticed. Considering the recent anti-Russian sanctions law, the update of the blacklist of the Department of the Treasury is truly a drop in the bucket. The emergence of new faces and companies is a routine phenomenon, because Russia remains under the strict sanctions pressure. In any case the North Korean trace is a new event here. Moscow traditionally oriented itself to interact with Washington over North Korea. We are accustomed to associate sanctions mainly with the Ukrainian issue, Syria and other hot spots in relations with the United States.

Much more important is that in August, the US Department of the Treasury blacklisted Chinese companies. Although there is no question of sanctions against the Chinese state as such, Beijing was very critical against the US actions.  Another round of escalation of the Korean issue could well lead to further attempts by the Americans to press Beijing. The goal is to adjust its policy towards the DPRK, to force China to abandon North Korea's support or to increase pressure on it. Therefore, the new Chinese companies and citizens may be added to the blacklist. And Russians may be there along with them.

How likely is the escalation of US sanctions? What is the difference between sanctions against China and sanctions against Russia? How far will Washington go?

The American policy of sanctions in its current form differs from the sanctions of the 1990s and the early 2000s. Before, the main means of sanctions pressure was trade, but now the sanctions migrated mainly to the financial sphere. Today, they are based on three pillars: the significant role of the dollar in world trade; the ability of the US to act as a global technological hub (and thus influence the supply and movement of technology); and on the reputation of foreign companies in their competition for the American market. The last component is important because of the large volume of the American market. Any company can be faced with a choice: either the American market, or, for example, the Iranian one. Such a game was quite successful against Tehran. At least in the United States it is commonly believed that sanctions helped bring Iran to the negotiating table.

In the same form the sanctions were applied against Russia. The US hits as much as possible against refinancing of the Russian debt, blocks supplies for the raw materials industries and actively manipulates the reputation factor. The Americans managed to create a very impressive international sanctions coalition. In the short term, these measures are poorly felt. But the Americans think that they will be painful in the future, as the funds wear down and large companies leave Russia. For Russia (as for Iran), the fragility and one-sidedness of the economy is a bad factor. The effect of sanctions can be multiplied by the conjuncture fluctuation in the world commodity markets. Just during these periods sanctions are most sensitive. It is also important that Russia cannot give an effective economic response to sanctions. For the United States, the Russian response will be painless due to the relative weakness of our economy. So, you can impose sanctions against Russia practically with impunity.

However, the experience of the economic war against Russia is noteworthy to others. So far, none of the political goals of sanctions have been achieved. Moreover, their growth and legislative consolidation only tightened Moscow's political stance. Whether Ukraine, Syria, or "human rights," Russia has not made concessions on any of these issues. Sanctions teach Russians to be resourceful in finding technology, attracting money and diversifying the economy. The political system consolidated against the sanctions. Moreover, it was Moscow that became the main lobbyist for the new world order. The result of all these efforts is not obvious. However, it is exactly at variance with the original "plan" of the creators of the sanctions (if such a "plan" really existed).

A completely different picture is emerging with China. In the US, there has been a long talk about possible sanctions against China. There are plenty of reasons. The most serious are cyber espionage and activities in the South China Sea. The Obama administration tried to smooth out sharp corners and avoided sharp actions. Even when Chinese hackers got access to personal data of 20 million US citizens, Obama hushed the scandal. The grumbling of Washington and its allies over the bulk of the islands and military infrastructure of South China Sea, Beijing has benevolently ignored, ostensibly "forcing out" foreign fishing vessels from the zone of the islands. As to South China Sea, Beijing won a biting victory and managed to keep intact economic ties with America. Now the Korean issue is added to the list of claims.

However, China is not Russia. Imposing sanctions, Americans will really have to think twice. First, the level of interdependence of the two economies is great, in contrast to minimal economic ties with Russia. The blow to China will have the opposite effect on Americans. The problems of the Chinese economy are now also the problems of the US economy, not to mention the global consequences. Second, inside the United States it will not be easy to reach consensus on sanctions against Beijing. Russia can be smeared at meetings of the Congress; with China, this will not work, because it involves jobs and serious business interests. Third, it will be difficult to unite an international coalition against China. Indeed, in Asia, virtually all major economies are oriented toward trade with the PRC. The Euro-Atlantic solidarity can be quickly generated against Russia (although some of the players' discontent is growing stronger). In the case of China, the coalition will collapse before it is created. Fourth, the Chinese economy has a high level of diversification. Unlike vulnerable Russia, sanctions cannot be multiplied due to market conditions. Finally, fifth, the PRC can respond very painfully by simply toughening its position, in the long run, undermining confidence in the dollar.

In this fifth point, the PRC and Russia are similar cases. Pressure on them is unlikely to give the expected political results. Moreover, the Chinese quite reasonably point out that the economy and the Korean issue are fundamentally different baskets, and it is senseless to link them.

All these arguments would probably force the Americans to limit themselves by pinpointing at some companies or individuals, as it was done in August by the US Department of the Treasury. However, there is an important factor of uncertainty - President Donald Trump himself. His political energy and a special attitude towards China can very well lead to more serious sanctions with the subsequent domino effect. It is difficult to say now what the consequences may be. But the solution to the North Korean nuclear missile problem will be completely stalled.

Author: Ivan Timofeev, Director of Programs at the Russian International Affairs Council and Valdai Discussion Club

Firstly published: Valdai Discussion Club