Sanctions: the new economic battlefield

Economic warfare is being fought with an intensity not seen since the period leading up to World War II as countries deploy tariffs, embargoes and economic sanctions to force policy changes or punish their adversaries.

Free trade is coming off second best, and global trade has stalled. There’s been no growth in trade volumes since late 2017, contributing to a slowing world economy.

The World Trade Organization, as the upholder of global trading rules, looks increasingly impotent. Its resemblance to the League of Nations in the late 1930s will sharpen if, as is possible, the US withdraws in the lead-up to next year’s presidential election.

A rising tide of trade embargoes in the early 1940s was the catalyst for Japan’s bombing of Pearl Harbor and attacks in Southeast Asia to secure its supplies of rubber and oil.

While the escalation of tariffs between the US and China has been the greatest concern to economists and institutions like the International Monetary Fund, the use of economic sanctions is becoming increasingly aggressive and extends far beyond UN Security Council mandates.

The US regards its sanctions as having a global reach—any business defying a US sanctions regime against another country can expect to lose access to the US dollar as a means of payment and have any US financial assets frozen.

China, which doesn’t recognise US sanctions, is increasingly being caught in their web.

The US was able to ask Canadian authorities in December 2018 to arrest Huawei chief financial officer Meng Wanzhou, claiming Huawei controlled an Iranian trading company that had been shipping US goods to Iran in defiance of its sanctions.

US appeals court on 30 July held that three Chinese banks were in contempt for failing to hand over to US authorities details of financial transactions involving goods destined for North Korea.

One of the banks, the Shanghai Pudong Development Bank (about the same size as the Commonwealth Bank), had been subpoenaed under the US Patriot Act to provide information on its dealings with a Hong Kong–based trading company and is now at risk of having all dealings with US correspondent banks banned.

That would be viewed by China as opening a third front in its conflict with the US, which started with tariffs, then escalated to the banning of technology exports and would now see the US using the global dominance of the US dollar to impose financial sanctions.

A week earlier, the US imposed sanctions on a Chinese oil trading business over allegations that it shipped crude oil from Iran. The Chinese government has said it doesn’t recognise the US sanctions and will continue importing Iranian oil. The sanctions mean the company is barred from foreign exchange, banking or property transactions involving US jurisdictions. It effectively prevents it from using US dollars to settle its trade.

Read the article by David Uren in The Strategist.