China gives Trump a poke in the eye on trade

During his first term, President Donald Trump was intent on weakening Iran’s economy. He did so by issuing two executive orders sanctioning individuals and businesses trading with Iran. These orders were put into practice this year when the U.S. declared that five Chinese refineries had not complied by buying Iranian crude oil.

They themselves are now subject to sanctions by the U.S. government.

Unilateral sanctions such as these on companies and countries doing business with countries that the U.S. does not like have been a preferred bullying tactic by Trump. When the five Chinese companies were sanctioned, the Chinese government strongly protested, but did nothing until now.

On May 2, China escalated the U.S.China trade and diplomacy wars by issuing its Announcement 21. This federal decree does two things. First, it mandates that Chinese citizens and companies shall not recognize, enforce, or comply with the U.S. executive orders that sanction trade with Iran. China’s announcement also allows any U.S. citizen or company that stops doing business with the refineries due to Trump’s executive orders to be sued in a Chinese court. Announcement 21 is part of existing statutes, which China chose not to enact during previous spats with the U.S. over trade. China’s latest decree now escalates the trade war with the U.S. and puts companies squarely in the middle.

If a U.S. company obeys Trump’s executive orders by canceling business with one of the refineries sanctioned for doing business with Iran, it can now be taken to task in China for doing so. If it is convicted in a Chinese court for violating Announcement 21, it could be fined, the amount of which is currently uncertain.

Worse yet, it could be banned from doing business in China, the world’s secondlargest economy. This latest trade dustup only concerns five Chinese companies, but it has larger repercussions for any company doing business with Iran that the U.S. sanctions. Announcement 21 shows China clearly communicating with the U.S. that not only is it not backing down from the U.S.’s unilateral bullying, but is firing back with powerful salvos of its own. The timing of China’s action is not a random shot at the U.S., but a very calculated one.

China’s action preceded Trump’s meeting with Chinese leader Xi Jinping in Beijing last week for high-level talks on trade and diplomacy. China’s move acted as a poke in the eye to the U.S. ahead of the meeting. It is a clear signal that China will not back down from the U.S. and is willing to escalate the trade war to flex its muscles.

China is one of the biggest purchasers of Iranian oil. Perhaps it has concluded that the flow of oil is much too important to cower to unilateral U.S. sanctions on companies doing business with Iran.

Or perhaps China has concluded that the U.S. has agitated and picked fights with its traditional allies throughout the world, and it feels empowered to pile on with its own painful actions. The U.S. war with Iran may also have factored into China’s bold move.

While the U.S. has started unnecessary fights with its allies and trading partners, China has been busy forming trade-related partnerships with many of these countries that have become disillusioned with the new U.S. style of trade and diplomacy. China has also forged ahead, signing contracts to build infrastructure such as bridges, airports, roads and water systems — not only in Latin America, but also in Europe. It sees an opening to gain the diplomatic ground that the U.S. is willingly ceding by insulting and attacking allies.

The recent pull-out of 5,000 soldiers from Germany, with Trump’s announcement that more are on the way because Germany has not supported the U.S. war with Iran, signals to China that the former longstanding loyalty and protection the U.S. afforded its allies is a thing of the past. China could see the U.S. as being isolated, and its latest action could seek to isolate it even more.

Trump has not publicly reacted to China’s Announcement 21. However, his and China’s decrees will no doubt get a lot of discussion in the future.

What is certain is that China feels empowered — enough to even risk weakening diplomatic relations ahead of the meeting with Trump. The stakes for both countries are extremely high as their trade war lingers and escalates.

Hopefully, logical minds will prevail, or we could see stronger shots fired at each other as the trade war deepens and lingers.

Jerry Pacheco is the executive director of the nonprofit International Business Accelerator. He can be reached at 575-589-2200 or jerry@nmiba.com.

BUSINESS ACROSS THE BORDER

Jerry Pacheco