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Why Trump just slapped new sanctions on Chinese banks

The era of Trump being gentle with China on North Korea appears to be over.

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cThe Trump administration’s months-long effort to be gentle in encouraging China to rein in North Korea is officially over.

On Thursday, the White House announced that it’s slapping sanctions on a Chinese bank, a Chinese company, and two Chinese individuals for their ties to North Korea — an unambiguous sign that patience over China’s reluctance to help curtail Pyongyang’s nuclear program has grown thin.

“While we will continue to seek international cooperation on North Korea, the United States is sending an emphatic message across the globe that we will not hesitate to take action against persons, companies, and financial institutions who enable this regime,” Treasury Secretary Steve Mnuchin said in a statement.

Here’s a quick breakdown of the sanctions:

  • The Treasury Department has labeled the China-based Bank of Dandong “a foreign bank of primary money laundering concern,” and accused it of “serv[ing] as a gateway for North Korea to access the US and international financial systems despite US and UN sanctions.” Basically, the US believes that North Korea is able to make investments and purchases by funneling its currency through this bank. This action freezes the entire bank out of the US financial system.
  • The US has sanctioned Dalian Global Unity Shipping Co. for its alleged involvement in the smuggling of luxury goods into North Korea in defiance of a United Nations–mandated luxury goods ban. The sanctions freeze any US assets it has and ban Americans and American companies from doing business with it.
  • The Treasury Department has designated two individuals, Sun Wei and Li Hong Ri, for establishing and running front companies for North Korean banks. The sanctions freeze any US assets they have and ban Americans and American companies from doing business with them.

Mnuchin said in his statement that the sanctions “are in no way targeting China with these actions,” and rather are measures targeted at institutions that are shielding North Korea from international isolation. But make no mistake — this is a clear message to the Chinese government.

“This is an effort by the Trump administration to get China to apply more pressure,” Bonnie Glaser, the director of the China Power Project at the Center for Strategic and International Studies, told me. “Part of it is reputational — this is a signal that the US is not happy about what China is doing.”

“But more importantly,” Glaser added, “it is an effort to begin to address the way that the North Korean regime and its military is getting access to funds, because they are conducting illicit activities thorough these entities in China.”

We saw some foreshadowing of today’s action in a cryptic tweet Trump sent out last week, which seemed to rather amicably notify Beijing that it was planning to shift gears:

Consider this the opening salvo of the administration’s new strategy, which is an attempt to make China’s leaders pause and re-evaluate their usual tactic of dragging their feet on pressuring North Korea.

China has a strategic interest in keeping North Korea stable, in part because it acts as a buffer against having rivals like South Korea and the US right at its border, and in part because it fears that instability or regime collapse could lead to a massive influx of refugees pouring over the border into China.

In the recent past, the threat of US sanctions was enough to compel China to curb much of its cyber espionage against the US. “The threat of sanctions actually convinced China to reach a deal with the US whereby they promised that they would not use cyber-enabled threats to gain commercial advantage,” Glaser explains. “It really is the threat of sanctions and willingness to impose them that might motivate the Chinese to do more [on North Korea].”

Chinese President Xi Jinping must be judicious as he chooses how to respond to Trump’s actions. The 19th Party Congress, where Xi will seek to consolidate his power and where the Communist Party will determine the country’s policy priorities for the next five years, is this fall. He needs to show he can manage this crucial bilateral relationship in order to have credibility going into that conference.

Xi could make a concession to the US by cracking down on more Chinese companies and banks that do illicit business with North Korea — there are tons to choose from. But he could also choose to act like he’s willing to become a strict enforcer but not follow through on it, something China does with banned goods going into North Korea all the time.

“You shut down one [bank or company doing illicit business], two weeks later it opens a mile away under another name,” Glaser says. “If the Chinese are really going to get serious, they’re going to have to apply a lot of scrutiny and enforce this.”