The Biden Administration’s China Sanctions Dilemma

The Biden administration recently stepped up its sanctions against China, in particular over the Hong Kong issue, notably by issuing a “warning” on July 16 about the “Risks and Considerations for Businesses Operating in Hong Kong” and imposing sanctions on seven deputy directors of the central government’s Liaison Office in Hong Kong. In fact, the Biden administration has adopted a relatively straightforward approach to the complex issue of how to face an increasingly confident and assertive China, by imposing series of sanctions over several key issues, including human rights in Hong Kong.

Former U.S. President Donald Trump, well known as an iconoclast, paved the way for current President Joe Biden, who is politically more sophisticated than his predecessor, to sanction or even “punish” China. Therefore, the Biden administration does not need (or maybe does not intend) to spend too much energy on introducing new policies and sanction regimes; it can just follow in the Trump administration’s footsteps.

But that seemingly simple choice hides a deeper dilemma for Biden’s approach to China.

The Biden administration continues to believe that the United States, as the beacon of the free world, has a destined responsibility to maintain a consistently strong posture toward China on issues that concern U.S. fundamental values and political beliefs. That means Washington must take the lead in pushing back against Beijing, for example over the issues of Xinjiang, the South China Sea, Taiwan, and particularly Hong Kong.

Take the Hong Kong issue as an example. In the past few months, the Biden administration has made a flurry of policy moves, as shown in the table below.

While these sanctions reflect the Biden administration’s strong political will to keep promises made by the United States over the Hong Kong issue, they also show that the administration is still exercising relative caution in implementing targeted sanctions within the policy framework set by the former Trump administration. These measures, however strong they seem to be, are in fact fairly restrained. They cannot change the established policy routes of China’s central and Hong Kong SAR governments, nor can they cause substantial harm to the political ecology and economic development of mainland China and Hong Kong.

The U.S. has been sanctioning China over the Hong Kong issue since 2019, but those sanctions are largely targeted and limited. The business environment in mainland China and Hong Kong has not been much affected, indicating that multinational businesses, in particular, still hold a high level of confidence in the Chinese economy and the unique role that Hong Kong still plays in international business activities. Meanwhile, the rapid recovery and high growth of the Chinese economy amid the COVID-19 pandemic have also helped to sustain Hong Kong’s important position as a gateway for international capital to enter China’s vast domestic market.

As a result, the Biden administration appears to be more constrained when it comes to harsh sanctions measures. Any measures strong enough to do real damage to China and Hong Kong would inevitably impact U.S. interests as well. After all, there are an estimated 1,200 U.S. companies doing business in Hong Kong and some 85,000 U.S. citizens living there. Obviously, mainland China behind Hong Kong is already a powerful economy of a completely different magnitude than it was at the beginning of reform and opening up – or even just a decade ago.

Comprehensive sanctions against mainland China and Hong Kong, especially against the highly interconnected and extremely sensitive financial sector, would likely trigger serious consequences that the Biden administration may not be able to anticipate and deal with including a dramatic upheaval in the U.S.-led global financial system. In the history of international relations, harsh and severe sanctions often have unintended consequences; thus they are not always favored, especially among great powers. For example, in his latest article published in Foreign Affairs, Kurt Tong, former U.S. consul general to Hong Kong and Macau, warned that a full-scale U.S. attack on China’s financial system (in which Hong Kong still plays a unique and important role) would only “redouble Chinese efforts to create an alternative to the dollar-dominated SWIFT payments system.”

Therefore, flexibility seems to be something that the Biden administration needs in its determination to confront Beijing. That was the goal behind U.S. Deputy Secretary of State Wendy Sherman’s visit to China in late July, which, no matter how the world interpreted it, still revealed “the importance of maintaining open lines of communication” between the two countries.

Nonetheless, the Biden administration’s established tactics to sanction and punish China continue to be used in parallel with dialogue and communication. On that subject, remember that the report of the White House-ordered investigation into the origins of the COVID-⁠19 pandemic on China may come out soon. The investigation was initiated on May 26 and supposed to take 90 days. Given the sensitivity of the question, the results could be a landmark event between the two countries, depending on the conclusion drawn by the report.

The conflicts, differences, and issues between China and the United States cannot be resolved by any form of sanctions. The Biden administration should not deal with China in the way that Donald Trump did, namely by offering “peace” with one hand and “war” (albeit a trade war) with the other.