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International relations

Trump's attacks on Iran complicate trade war with China

Tensions between Washington and Tehran have little upside for Beijing

U.S. pressure has restricted economic ties between China and Iran, but it may also create new incentives for common opposition against American unilateralism. (Nikkei Montage/ AP / Getty Images )

TAIPEI -- The Trump administration has abandoned Obama-era engagement of both China and Iran in favor of pressure and confrontation. This has pushed Beijing and Tehran closer together, making their relationship a trade war target for the White House.

The U.S. has tightened sanctions on Iran over the past year, and this is likely to continue if President Donald Trump shifts from military threats to full-on economic war. With China conducting significant business with Iran, the risk is more head-butting between the world's two largest economies and military powers.

Peng Nian, a fellow at the Institute for China-America Studies, said Beijing was upset with Washington's pullout from the Iran nuclear deal -- the Joint Comprehensive Plan of Action -- which it regards as the successful outcome of its mediation with Tehran. Future tensions between the U.S. and Iran have little upside for China, he said.

"China's interests in the Middle East, such as the implementation of the Belt and Road Initiative in the Middle East and energy cooperation between China and Iran, would be undermined due to a deteriorated security situation," Peng said.

The threat of the U.S. going to war with Iran appears to have receded for now, but harsher sanctions and a push to halt all Iran's oil exports continue to squeeze the Middle Eastern power.

Speaking in Switzerland on June 2, U.S. Secretary of State Mike Pompeo softened the White House's bellicose rhetoric toward Tehran.

"We are prepared to engage in a conversation with no preconditions. We are ready to sit down with them," Pompeo said. The olive branch, however, came with a caveat: "The American effort to fundamentally reverse the malign activity of this Islamic Republic, this revolutionary force, is going to continue."

U.S. policies have had paradoxical effects on the China-Iran relationship, said Mohsen Shariatinia, an assistant professor of international relations at Shahid Beheshti University in Tehran.

"On the one hand, U.S. pressure has restricted economic ties between the two countries," he said. "And on the other hand, they have created new incentives for common opposition against U.S. unilateralism."

Chinese Foreign Minister Wang Yi meets Iranian Foreign Minister Mohammad Javad Zarif at Diaoyutai State Guesthouse in Beijing on May 17.   © Reuters

Two weeks before Pompeo's offer, Iran's foreign minister, Mohammad Javad Zarif, met his Chinese counterpart, Wang Yi, for talks in Beijing. China's Foreign Ministry released a statement afterward expressing support for the nuclear deal -- which Washington unilaterally withdrew from in May 2018 -- and slamming the "long-arm jurisdiction" imposed by the U.S. on Iran.

China was especially angered in December, when Canada -- at the request of the U.S. -- arrested Meng Wanzhou, chief financial officer of Huawei Technologies and daughter of the Chinese tech giant's founder. The U.S. seeks to prosecute her for allegedly violating American sanctions on Iran.

Beijing's furious response -- including the detention of two Canadians, one of whom is a former diplomat, and the retrial and death sentence handed down to a third in China -- may have been intended as a warning to the U.S. that singling out Chinese companies for punishment could result in hostage diplomacy.

For Chinese President Xi Jinping's team, "the current top priority is resolution of the trade and other disputes with the U.S.," Willy Wo-Lop Lam, an adjunct professor at Chinese University of Hong Kong, told the Nikkei Asian Review.

But the tensions between Washington's and Tehran are also of concern, given that Iran currently supplies around 10% of China's crude oil imports.

Beijing will maintain its line that the nuclear deal should be resumed, Lam said. "Yet, mindful of the upper hand that Washington has in U.S.-China trade negotiations," he added, "The Xi administration is unlikely to loudly contradict America's position."

Beijing likely felt a modicum of relief after Pompeo's recent climbdown, as an American-initiated war with China's second-largest trading partner in the Middle East (after the United Arab Emirates) would be highly disruptive. A major evacuation of Chinese nationals would be required, and Chinese investments and projects would be put into jeopardy.

But if cooler heads are prevailing in Washington regarding militarily confronting Iran, it appears the White House has doubled down on economic confrontation.

In mid-May, Trump's trade adviser and noted China hawk, Peter Navarro -- who authored a book titled "Death by China" -- penned an op-ed in the Financial Times zeroing in on the involvement of Chinese companies in Iran's metals industry, urging "zero tolerance" for violations of sanctions on Iran.

This suggests the arrest of Huawei's Meng may have been more than a shot fired in the tech battle; it could point to the opening of a new front in the trade war, one aimed at punishing both China and Iran.

"As has been illustrated by the Huawei case, it seems likely Beijing will continue to provide technological aid to Tehran, in ICT [information and communications technology] and other dual-use [civilian-military] sectors," Lam said. "It is also probable that China will help Iran break different aspects of the United Nations-imposed sanctions, including obtaining embargoed Western goods and gaining some access to the international financial system."

Iranians burn a mask of U.S. President Donald Trump during a protest marking the annual al-Quds Day in Tehran on May 31.   © Reuters

Last November, the White House announced a new round of sanctions on Iran targeting 50 lenders and their subsidiaries, Iran's national airline, and numerous shipping companies and vessels. It granted waivers for eight countries, including China, to continue importing Iranian crude.

In April, the Trump administration suddenly announced it would not extend the temporary waivers to any of the eight countries beyond early May. Pompeo accused Tehran of "destabilizing activities" in the Middle East, where Washington's closest allies, Israel and Saudi Arabia, have bitter rivalries with Iran. The administration's goal, he said, was to "reduce Iranian oil exports to zero."

"The Iranian regime has a choice. It can either do an 180-degree turn and act like a normal country, or it can see its economy crumble," Pompeo said.

The White House seeks to force Tehran to accept 12 demands, including stricter limits on its nuclear program, ending its ballistic missile program and releasing detained American citizens. Iranian President Hassan Rouhani has said the demands are unacceptable.

Although the U.S.-initiated trade war with China and sanctions regime imposed on Iran may be achieving some of the White House's goals, some in Washington worry that a preoccupation with Tehran could result in a loss of focus on the biggest strategic competitor to the U.S.: China.

Elbridge Colby, director of the defense program at the Center for a New American Security, said that from Washington's perspective, concerns about Iran were justified, but that China was a much larger challenge.

"Iran is a threat to U.S. interests in the Middle East, but China is a far greater challenge to U.S. interests in the world," Colby said. "The United States must handle the Iran challenge in a more economical and sustainable way, while focusing its efforts across the board toward China and Asia."

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