China Threatens Sanctions on US Companies: How Should Washington Respond?

China has threatened sanctions against US companies selling military equipment to Taiwan raising concern among officials in Washington that it could be bracing itself for a difficult chapter in US-China relations.

For the most part, Beijing has maintained that sanctions imposed only by the United Nations are legitimate. Now, China is stepping into relatively new territory.

Not so for the US.

Washington has been issuing such sanctions for years, particularly against Iran.

From 2010 to 2015, companies essentially got cut off from doing business in the United States if they engaged economically with Iran in transactions such as buying oil. When weighing access to the world’s leading financial system and a market dwarfed by its size, most companies decided to avoid Iran.

If Beijing’s sanctions are imposed, affected companies would be considering business with Taiwan or access to an economy 20 times its size.

According to Reuters, US defense companies don’t currently sell arms to Taiwan. However, these companies provide Taiwan with civilian equipment such as passenger aircraft and aviation parts.

But the threat of sanctions can raise eyebrows among a broad range of US executives.

Right now, China is a crucial market for American products ranging from computer chips to automobiles.

Among the companies that credit China for at least 10 percent of their business are Apple, MasterCard and Wal-Mart.

Nonetheless, there is much Washington can do to address this threat.

First, it needs to assess the weak points of its sanctions. While the US has the analytic means to develop new sanctions, it doesn’t have a proper system in place to identify and ameliorate faults in its sanctions.

Reuters’ Peter Harrell suggests the US Treasury could develop a “defensive sanctions planning committee to research and report on U.S. sanctions vulnerabilities.”

On the front end, the US needs to make it clear to China that its threats are illegitimate and unacceptable, and that it will support any companies potentially affected by this threat.

Next, the US can develop international standards that define the legitimacy of sanctions and ways to address violations to agreed-upon terms.

While it won’t stop governments from violating the agreement, it would give the US a way to combat misuse.

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