China’s recent threat to impose sanctions on U.S. defense companies that sell arms to Taiwan should come as no surprise to American officials or corporate executives: Washington has been issuing sanctions of these sorts for years. It was only a matter of time before U.S. competitors started copying its tactics. Regardless of whether China follows through on its threat, Washington needs to be ready for a new normal in which the United States must defend against sanctions as well as impose them.
China is taking a page from the sanctions playbook Washington developed against Iran. Between 2010 and 2015, the United States effectively gave companies a choice: If they did prohibited business with Iran, like buying oil, they would get cut off from doing any business in the United States. Forced to choose between access to the world’s most important financial system and an Iranian market less than 1/30th the size, most companies stuck with Washington and avoided Tehran.
China’s threat mirrors this approach — trying to force U.S. companies to choose between defense sales to Taiwan and access to a Chinese economy that is nearly 20 times larger. While U.S. companies do not currently sell military equipment to China, many U.S. defense contractors do sell civilian passenger aircraft, aviation parts and other civilian equipment in China and could find their ability to continue those sales cut off by Beijing.
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China’s public threat over Taiwan marks a major escalation in its apparent willingness to deploy sanctions of its own against U.S. companies engaging in business, particularly business that is expressly authorized by the Obama administration and publicly supported by many in Congress.
Chinese policymakers understand that their growing economic and financial clout makes sanctions threats more credible. China is a critical market for U.S. products from cars to computer chips, and companies like Wal-Mart, Apple, MasterCard and Starbucks are among the leading American firms that generate at least 10 percent of their business in China, according to data compiled last year by Factset Research.
Other countries, like Russia, have also begun to assess areas where they have economic leverage they can use against Washington and its allies.
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Sanctions and other economic tools will likely play a central role in U.S. foreign policy in the years ahead. China’s threat brings home the need to recognize that the United States has its own vulnerabilities, and Washington should take steps to address them.
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