US pulls China punches in Iran ‘economic D-Day’ sanctions

China warned of reprisals against possible United States sanctions as the Trump administration launched “economic D-Day” in a bid to isolate Iran following six months of military conflict.“China will do everything necessary to firmly safeguard its rights and interests,” foreign ministry spokesman Lin Jian told reporters on Tuesday. Economic warfare would “only serve to fuel tensions and lead to risk spillover”, he said.The US on Monday demanded countries take “immediate action” to cut economic and commercial ties with Iran, while slapping new sanctions on 60 entities around the world. There was only limited action against China, which buys about 90 per cent of Iranian oil, with just 24 people and businesses, including some based in Hong Kong, added to the US blacklist. None of them were major banks or refineries, for instance.Elsewhere, China joined Jordan in calling for the reopening of the vital Strait of Hormuz following a meeting on Monday between Xi and King Abdullah in Beijing. The foreign ministry also said on Sunday that Iran’s deputy foreign minister, Kazem Gharibabadi, visited China last week. Vice-Foreign Minister Miao Deyu told Gharibabadi that China is “actively committed” to Iran peace talks.Chinese leader Xi Jinping is due to make a state visit to the US next month.Related news: The US is eyeing a new 7.5 per cent tariff on Chinese goods tied to overcapacity concerns, Bloomberg News reported on Monday, citing people familiar with the matter. The levy would raise the baseline rate to 20 per cent, a level that the Chinese government has previously said is consistent with a trade agreement between the two countries. Separately, Wang Huning, China’s fourth-ranked official, told a semi-official US delegation that the country is ready to help build “a constructive and strategically stable China-US relationship”. President Xi Jinping would make state visits to Kyrgyzstan and Egypt next week, the Chinese foreign ministry said on Wednesday. Xi will attend the Shanghai Cooperation Organisation (SCO) summit in Bishkek, Kyrgyzstan, as part of his trip before heading to Egypt for the first time in a decade. Iran is likely to be represented at the SCO gathering, as the country is one of the group’s 10 full members (see SCMP Plus factsheet). Xi’s two-legged trip will run from Sunday to Thursday. The Communist Party’s mouthpiece, People’s Daily, published commentaries defending China’s economy on three consecutive days amid signs of a slowdown. Monday’s article said that the government was pursuing targeted measures, rather than widespread stimulus, to avoid “policy addiction”. Pieces over the weekend said that growth remained on track to hit the full-year target and that economic resilience should be judged on the quality of growth as well as headline numbers. All three articles were published under the pen name “Zhong Caiwen”, widely believed to be associated with the Central Financial and Economic Affairs Commission. On Friday, China unveiled new measures to boost spending on big-ticket items such as vehicles and home renovations, including a one-percentage-point cut in credit-card interest rates. How others reported it Credibility deficit: The Trump administration has already imposed tariffs and other sanctions on so many countries, for so many alleged purposes, and backtracked so many times, that its credibility is exhausted. Moreover, Iran can get much of what it needs from China. So do you really believe that a weakened US can coerce China into helping it defeat Iran? And against China’s own strategic interests? If you believe that I have a few 30-year bonds to sell you. (Paul Krugman, Substack) Nothing left: US officials are still struggling to strangle Iran’s economy despite the mountain of sanctions Washington has heaped on the country over the past five decades. “We’ve done all the low-hanging, medium-hanging and high-hanging fruit,” said Alan Eyre, a former US diplomat and Iran expert now with the Middle East Institute. “We’ve cut down the whole sanctions tree. There’s nothing left.” (The New York Times) Not enough: Nearly 47 years of US sanctions have damaged the Iranian economy: worsening inflation, depreciating the currency and sending Iranians further into poverty. But they haven’t collapsed its government or forced its capitulation in the ongoing war. That suggests, absent a willingness to target Iran’s largest oil customer, Bessent’s threatened “economic asphyxiation” won’t be enough to strangle Tehran. And it’s unlikely to change its behaviour. (Bloomberg Economics) No capitulation: “The blockade [of the Strait of Hormuz] has clearly hurt Iran, especially its oil exports, but it hasn’t produced the political outcome Washington wants. Iran hasn’t capitulated,” Sina Toossi, a fellow at the Center for International Policy, told Al Jazeera. … “So ‘Economic D-Day’ looks like an effort to intensify the pressure now that the military campaign has failed to deliver a decisive outcome.” (Al Jazeera) Finally found it: Mr Trump has belatedly found a pressure strategy with Iran that may give him the upper hand. But the [Islamic Revolutionary Guard Corps] is unlikely to give up its financing networks without a fight. Will Mr Trump stick to this strategy when Iran next fires on Gulf energy and whispers a soothing word to mediators from Pakistan and Qatar? (The Wall Street Journal, editorial) The SCMP Plus takeawayHow hard will the Trump administration push China as it seeks to isolate the Iranian regime? And how far will China agree to be pushed? At present, the answer to both questions seems to be: not a lot.US Treasury Secretary Scott Bessent previewed the Iran sanctions by promising an “economic D-Day – the single greatest financial offensive ever marshalled against an adversary”. What he unveiled was sanctions against 60 obscure entities and little to worry China – Iran’s economic lifeline.It’s likely that the weak jab partly reflects concerns about rupturing relations with China ahead of President Xi Jinping’s state visit to the US next month. A major punch could provoke a Chinese boycott of US goods, new restrictions on rare earth exports, or limits on shipments of key drugmaking ingredients. None of those would be helpful for an administration facing midterm elections in November, elevated fuel prices and decades-high borrowing costs.“No one is above the reach of US sanctions,” Bessent said when asked about China at Monday’s announcement. Still, “quiet diplomacy” was preferable.Bessent also made a broader point in favour of going slow on sanctions, highlighting potential economic risks.“We are giving everyone the opportunity to remedy bad behaviour,” he said. “Why would I want to blow up the global financial system?”China answered the threat of potential US sanctions with characteristic defiance, while doing little in response to the limited measures actually introduced.Just over a third of the entities added to the US blacklist are directly related to China. Most of these additions are in fact parts of two main clusters.One grouping centres around Hong Kong-based Sweet Ocean Industrial Limited, which was accused of helping Iran acquire sensitive goods including laser optical equipment, which can be used for missile guidance, testing and targeting as well as nuclear research. The other cluster ties back to an Iranian logistics company known as BRE Line. Both groupings include businesses in Hong Kong and mainland China, as well as individuals.In other words, the US measures are not particularly sweeping. Indeed, they fall far short of the 100 per cent sanctions on countries buying Iranian oil allowed for in legislation passed by the US Senate and endorsed by President Donald Trump.There’s also a notable absence of large institutions, such as major banks or oil companies, from the list of entities targeted. This again suggests that officials drew up the sanctions list with at least half an eye on avoiding a breach in the trade truce with China.Reports about a possible overcapacity tariff are another sign that the White House is only willing to go so far in confronting China. The administration is said to be weighing a new 7.5 per cent levy, which would go on top of a recently imposed 12.5 per cent tariff tied to forced-labour concerns. That would bring the overall tariff rate to 20 per cent.China’s Ministry of Commerce said publicly last month that a 20 per cent tariff limit had been agreed in trade talks with the US, suggesting heavily that there would be little response if the new levy was introduced. There wasn’t much concrete reaction when the forced-labour tariff was rolled out.China has also done little to provoke the US in regards to Iran beyond its limited oil imports and, according to the US at least, some exports of dual-use goods with both civil and military applications. There certainly haven’t been any bellicose calls for action, for instance, let alone weapons sales or direct military action.Instead, China has focused on diplomacy, including regular contacts with Middle Eastern governments. There could also be talks next week at the Shanghai Cooperation Organisation summit in Kyrgyzstan. China and Iran are both members of the group. China will also host a gathering of Arab nations later this year.For now, China and the US both seem to be focused on ensuring that Xi’s White House trip next month goes smoothly. That means containing thorny issues and avoiding major moves that could send relations into a tailspin.