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Washington and Beijing on dangerous collision course over North Korea

Kim regime may be ultimate beneficiary of any secondary sanctions on China

| China

Now that U.S. President Donald Trump's strategy of pressuring China to rein in North Korea's nuclear and missile programs has failed, Washington's options are narrowing. The recent passage of a set of sanctions against Pyongyang by the United Nations Security Council may have given the U.S. some temporary breathing space before taking further steps to squeeze the Kim Jong Un regime. However, if Kim continues his provocative nuclear and missile tests, the U.S. may have to turn back to China and try arm-twisting to accomplish what Trump's sweet talk couldn't. At the moment, the most-talked about option is secondary sanctions against Chinese entities doing business with North Korea.

On the surface, the logic behind a "get tough" approach to China sounds impeccable. As Pyongyang's principal patron, China keeps the Kim regime on life support with trade and thus bears primary responsibility for preventing the rogue state from endangering the world. If Beijing continues its current course of shielding Pyongyang from external pressure, it will have to pay a real price. Secondary sanctions would make Chinese leaders appreciate the costs of their ill-advised policy.

Like all the other options proposed to deal with North Korea, secondary sanctions against China sound promising in theory but would be devilishly complicated when put in practice. By refusing to turn up the heat on North Korea after Trump explicitly tied the future of U.S.-China relations to Beijing's policy toward Pyongyang, Chinese leaders have obviously considered -- and accepted -- the likely consequences of their decision, including secondary sanctions.

From Beijing's perspective, the costs of potential secondary sanctions are less than those associated with an economic collapse of North Korea that might be triggered by a total cut-off of Chinese support. If, as Trump desired, China shuts off its oil pipeline, ends all trade, and blocks North Koreans from its banking system, the regime will slowly wither, significantly raising the odds of its eventual collapse. However, as is well known, the geopolitical fallout from the disappearance of North Korea as a strategic buffer for China is too horrifying for Chinese leaders to contemplate.

If the costs of a regime collapse in North Korea are incalculable in the minds of Chinese leaders, those of secondary sanctions imposed by the U.S. are bearable. Although we have no way of ascertaining Beijing's thinking, Chinese leaders apparently believe that Washington will target only minor players in the Chinese economy.

Their assumption is not entirely baseless. The U.S. has gone after only two Chinese entities so far. In September last year, the U.S. sanctioned a Chinese businesswoman, Ma Xiaohong, the owner of a private company, Dandong Hongxiang Industrial Development. At the end of June this year, Washington blacklisted the Bank of Dandong, a small Chinese commercial bank with assets of 72 billion yuan (about $11 billion).

If further American secondary sanctions were to follow the same pattern, their sting will be no more than "bug bites" -- annoying but inconsequential to China. Needless to say, China can easily absorb such secondary sanctions.

Strategic calculus

To change Beijing's strategic calculus and behavior, the Trump administration will have to escalate and impose far more drastic penalties. For instance, if new secondary sanctions single out mammoth Chinese state-owned entities such as major banks (that provide indirect banking services for North Korea), oil companies (that supply North Korea with crude), and telecom companies (that facilitate Pyongyang's cyber-attacks), the potential disruption of businesses would be calamitous for them and, consequently, extremely costly for the Chinese government.

The puzzle is why such sanctions are not on the menu of options for Washington, even as it desperately gropes for a solution.

One popular explanation is that the U.S. is deterred by possible Chinese retaliations if secondary sanctions finger large Chinese state-owned entities. This is not entirely groundless, but those holding this view may exaggerate American concerns. To be sure, the Chinese and American economies are highly interdependent, but such interdependence is also asymmetrical: China is far more economically dependent on the U.S. than the other way around.

China may retaliate against individual American firms deriving a large share of their revenues from China (such as Apple, Boeing, and Caterpillar), but American counter-retaliation can wreak economy-wide havoc in China, which exported $478 billion in goods to the U.S. last year (about 23% of its total exports). Evidently, China will lose far more than the U.S. in such a showdown.

The real reason behind Washington's reluctance to slap China with serious secondary sanctions is the dilemma it faces in coaxing China to act more cooperatively on the Korean peninsula. If it takes relatively mild measures, such as applying modest secondary sanctions, they will have no effect on Chinese policy. But if it resorts to truly punishing sanctions, they are certain to generate the opposite effects.

At the moment, North Korea's nuclear and weapons programs occupy center stage and China could be a potential partner for the U.S. in confronting this lethal threat to American security. But when Chinese refusal to cooperate compels the U.S. to escalate to biting secondary sanctions, U.S.-China relations risk a full rupture.

Under such a scenario, the U.S.-China conflict will take center stage, making the nuclear drama unfolding on the Korean peninsula a mere sideshow. Should this happen, the clear beneficiary would be Kim Jong Un, since China will likely become even less cooperative with the U.S. Washington's strategic objective of keeping Kim from acquiring nuclear-armed inter-continental ballistic missiles will be utterly unattainable.

The most crucial decision facing the Trump administration in the coming weeks is whether to call China's bluff and show that it is prepared to escalate, regardless of the potential risks of a full rupture in bilateral relations. It may pursue a two-track strategy. The first is a diplomatic track. Trump should dispatch his top aides, such as Secretary of State Rex Tillerson and national security adviser H.R. McMaster, to give Chinese leaders one more chance to reconsider their current policy and warn them of the serious consequences if Beijing ignores Washington's entreaty again.

More importantly, they will have to convince their Chinese counterparts that the U.S. is willing to absorb the costs of escalating secondary sanctions even though the downward spiral of U.S.-China relations may end up benefiting North Korea.

The second track consists of a gradual escalation of secondary sanctions. Washington may start with minor Chinese entities and move against more substantial ones if such measures fail to deliver desired results. Such a course of action will strengthen the credibility of America's resolve but also give China plenty of opportunities to reverse its current policy.

As containing North Korea's nuclear ambitions is a shared security interest of the U.S. and China, Beijing will be merely doing itself a favor by partnering with the U.S. That it may have to be forced to do so with threats of costly secondary sanctions only underscores how long-held but erroneous geopolitical tenets and assumptions have led Chinese policymakers down a dangerous path of collision with the U.S.

Minxin Pei is a professor of government at Claremont McKenna College and a non-resident senior fellow of the German Marshall Fund of the United States.

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