Russia is dry run for bigger China sanctions test

WASHINGTON, Feb 25 (Reuters Breakingviews) - Financial penalties didn’t deter Russia’s read more Vladimir Putin from attacking Ukraine. They may have even less chance of preventing that other global act of aggression the United States would rather avoid: China trying to take control of Taiwan, the self-governing island it claims as part of its territory. If anything, past sanctions have served to balkanize the world further.

The idea behind sanctions read more like those U.S. President Joe Biden announced on Thursday is to impose a cost on the aggressor – in this case, depriving big banks of access to American financial markets, and curbing access to technology. But unless structured carefully, they can impose a cost on the originator too. Russia is the third-largest oil producer in the world, and heats much of Europe through winter. That’s why so far, the West read more has spared the country’s energy sector, and declined to eject it from the SWIFT system used by banks for cross-border payments.

If China did move on Taiwan, it would make the challenges of structuring Russia-Ukraine sanctions look like a cakewalk. The United States has a vague duty to help the island defend itself according to the Taiwan Relations Act. But the number of carve-outs that would be required given huge bilateral U.S.-China trade could impair their effectiveness. China was the top source of foreign imports in America last year, accounting for almost 20% of such goods. Companies from Starbucks (SBUX.O) to Apple (AAPL.O) to JPMorgan (JPM.N) and BlackRock (BLK.N) have significant interests and aspirations in the country. Targeting China’s biggest banks could also harm the global economy. It’s home to four globally systemically important banks, according to the Financial Stability Board’s 2021 list.

Moreover, China has a head start in creating workarounds. The country has its own SWIFT rival known as the Cross-Border Interbank Payment System. Washington’s earlier restrictions on Chinese telecommunications giant Huawei were effective, but that also caused Chinese companies to accelerate development of their own microchips and mobile operating systems, reducing their reliance on American versions.

Biden said on Thursday that Russian sanctions weren’t mean to prevent hostilities, but rather to inflict economic pain over time. If China were the aggressor, the preventative power of sanctions would be even weaker. Even if that scenario remains far away, the international economic system America helped build is showing ever more cracks.

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(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)

CONTEXT NEWS

- Taiwan’s Defense Ministry said on Feb. 24 that its air force made moves to warn nine Chinese aircraft that had entered its air defense identification zone.

- China’s Foreign Ministry said the previous day that Taiwan, a self-governing island that is claimed by the People’s Republic, is "not Ukraine" and has always been an inalienable part of China.

- British Prime Minister Boris Johnson said on Feb. 19 that if Western nations failed to support Ukraine’s independence against Russian military moves, it would have damaging consequences for Taiwan.

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