Trump Threatens the Big Banks in China – The American Interest

Trump Threatens the Big Banks in China – The American Interest.

by Sean Keeley · September 13, 2017
After China and Russia watered down the UN sanctions against North Korea this past week, the Trump Administration is threatening major Chinese banks that do business with the regime. It could be a new phase of Trump’s pressure campaign against Pyongyang, suggests the

Marshall Billingslea, a top Treasury official, told Congress on Tuesday that the US had not seen sufficient evidence that China was willing to curb North Korean revenue flows and “expunge North Korean illicit actors” from its banking system. He said the Trump administration … would “not hesitate to act unilaterally”. […]

“If China wishes to avoid future measures, such as those imposed on Bank of Dandong or the various companies sanctioned for illegal trade practices . . . it urgently needs to take demonstrable public steps to eliminate North Korea’s trade and financial access,” Mr Billingslea told the House foreign affairs committee. […]

Mr Billingslea said the Bank of Dandong action had had a “very clear effect” on its operations. “That was a very clear warning shot that the Chinese understood.”
Billingslea is one of many Administration voices suggesting that Chinese banks could be put in the crosshairs. The top Asia hand at the State Department, Susan Thornton, echoed his message in her Congressional testimony. Treasury Secretary Steven Mnuchin made the threat explicit: “If China doesn’t follow these sanctions,” he warned on Tuesday, “we will put additional sanctions on them and prevent them from accessing the U.S. and international dollar system.” And President Trump has hinted, in his own informal way, that much tougher measures are on the horizon: the latest UN sanctions were “not a big deal,” the President said yesterday. “Those sanctions are nothing compared to ultimately what will have to happen.”

Coming after Trump’s first two rounds of secondary sanctions, those threats are credible enough that the Chinese are taking them seriously. As the FT reported on Monday, China’s five biggest banks recently implemented a ban on new North Korean accounts; some have gone further and begun cleaning out existing accounts held by North Koreans. Those marching orders came from China’s central bank, in a clear attempt to placate Washington and forestall further sanctions.

But those efforts may be insufficient to appease Trump. Experts assess that momentum is building within the Administration for an aggressive, take-no-prisoners sanctions campaign to squeeze Pyongyang’s enablers—one that could be modeled on past sanctions against Iran. The FT again:

Bruce Klingner, a former CIA North Korea analyst, said the combination of UN and US actions this year showed that Washington was “moving towards economic warfare” in the way Washington had targeted Iran. US officials have argued that such a path is critical to warding off any future pre-emptive strike to knock out a North Korean ICBM, or a broader “preventive” war that would aim to destroy all of North Korea’s nuclear capabilities.
The mention of Iran is an instructive one, and it highlights the feeble nature of our sanctions against Pyongyang so far. Public perceptions aside, the United States is not close to exerting maximum pressure against North Korea; policymakers crafted a much tougher and more biting sanctions regime against Iran. The trick was not to rely primarily on UN sanctions, but on coercive unilateral ones, built up over many years and several administrations. The anti-Iran sanctions ultimately forced a stark choice on businesses and governments alike: cease doing business with Tehran or lose access to the U.S. financial system. Economic self-interest and coercive U.S. diplomacy made the former option vastly preferable, turning Iran into a financial pariah and eventually driving it to the bargaining table.

So far, the United States has hesitated to use this kind of leverage against the main Chinese banks sustaining Pyongyang. Doing so would certainly be risky business, provoking economic blowback from Beijing and vocal opposition from U.S. business interests. But it may be preferable to the current policy— blustery rhetoric combined with UN sanctions that Beijing and Moscow are quick to weaken and slow to enforce.

To be sure, tough secondary sanctions are no panacea: cutting off Chinese banks from the U.S. financial system would not be a cost-free exercise, and it certainly won’t make North Korea surrender its nuclear deterrent. But unilateral sanctions on Chinese banks, if applied judiciously, could serve a longer-term strategy. They would show Beijing that Trump is no paper tiger, and that China’s veto in the Security Council does not hold sway over U.S. policy more broadly. They would hit Pyongyang where it hurts, while raising the costs for China of sustaining its rogue neighbor. They would reinforce signals already being sent to countries like Egypt and the Philippines that they, too, could be punished if they do not dramatically curb their trade with Pyongyang. And at a moment when existing options seem exhausted, they could strengthen Trump’s hand for future negotiations that could freeze—if not “solve”—the current crisis.

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