The Wrong Way to Coerce China

Trump's Misunderstanding of Sanctions

The Pudong financial district of Shanghai, November 2013. Carlos Barria / Reuters

In late June, U.S. Treasury Secretary Steve Mnuchin announced at a press conference that the United States would be taking action against the Bank of Dandong, a small lender based in a northeastern Chinese province near the North Korean border. He accused the institution of serving as Pyongyang’s conduit to U.S. financial institutions, thus helping channel “millions” toward Pyongyang’s nuclear weapons program. In fact, according to the U.S. Treasury Department, between 2012 and 2015, 17 percent of the customer transactions that the Bank of Dandong directed through the U.S. financial system were sent on behalf of companies tied to North Korean entities sanctioned by the United States and the United Nations.

In clarifying his remarks, Mnuchin stressed that Washington was not targeting China, per se, only “individuals and entities in China.” The coincidental timing of the announcement suggested otherwise. Just a week before, U.S. officials met with their Chinese counterparts in Washington in an attempt to pressure Beijing to do more about North Korea. It appeared that they were unsuccessful. It was no surprise, then, that Washington’s move against the Bank of Dandong was widely interpreted by the media and pundits alike as a “sanction,” intended to coerce change in China’s North Korea policy. It didn’t help matters that Mnuchin himself threw around the term, saying, “Whether they’re in China or they’re anyone else, we will continue with sanctions.”

Although it’s clear that President Donald Trump did mean to send a signal to China, his administration didn’t apply sanctions. Instead, it chose to invoke Section 311 of the USA Patriot Act, which is a regulatory tool intended to thwart illicit money from flowing into the United States. The Trump administration, however, is effectively deploying Section 311 as if it were a sanction—to pressure foreign governments, in this case China, to change their behavior. This misuse is problematic. The two tools have separate purposes, targets, requirements, and processes for repeal. While sanctions

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