In the run-up to the Trump administration’s vaunted “economic D-Day” for Iran, the US Treasury Secretary Scott Bessent invoked Roosevelt and Churchill as he vowed to wage the “single greatest financial offensive ever marshalled against an adversary.” This historic assault would begin “at dawn” on Monday (24 August), when Tehran would be subjected to the “full weight of American resolve.”
But when Bessent unveiled the details of Operation Economic Outcast at the US Treasury that day, the “greatest financial offensive ever marshalled” appeared to have been scaled back. The US announced sanctions against more than 60 companies, individuals, and shipping vessels allegedly linked to Iran’s nuclear and missile programmes, including some businesses based in Hong Kong and China, but notably avoided targeting any major Chinese financial institutions.
China buys more than 80 per cent of Iran’s oil – although imports have decreased since the start of the war as tankers have been largely unable to transit the Strait of Hormuz – so, one might expect Washington’s efforts to “sever every economic lifeline” to Tehran to begin with Beijing. Instead, Bessent announced that his great economic assault would now begin with a period of “quiet diplomacy”, with President Trump “making phone calls to world leaders” and “giving everyone the opportunity to remedy bad behaviour.” Pressed by reporters as to why he would not impose more sanctions straight away, Bessent replied by acknowledging the obvious: “Why would I want to blow up the global financial system?”
Beijing nevertheless pushed back strongly and publicly. Lin Jian, a spokesman for China’s foreign ministry, warned the following day (25 August) that his country would “take all necessary measures to firmly safeguard its rights and interests.” Economic warfare, he warned, would only “fuel tensions” and risk disrupting the “global economic and financial order.” It did not sound as if China’s leadership was preparing to back down.
When Trump launched his first trade war against China in 2018, Beijing initially appeared to be caught off guard. But Xi Jinping has focused systematically in the years since on reducing the vulnerabilities those early skirmishes exposed. The results of that approach were evident when Trump returned to power last year and announced his “Liberation Day” tariff regime. China hit back faster and harder than most other targeted countries, matching the escalating US tariffs, which soon reached more than 100 per cent, amounting to an effective trade embargo. Crucially, Beijing also restricted exports of specific rare earth elements and magnets used by American companies, exploiting a powerful chokepoint that ultimately seems to have succeeded in forcing the US back to the negotiating table.
Trump met Xi in Busan, South Korea, in October, where he praised Xi as a “great leader of a very powerful, very strong country” and they agreed a year-long truce. China promised to suspend its export controls on rare earths and resume purchases of American soybeans. In return, the US reduced tariffs on Chinese goods. Both sides presented the outcome as a victory, but China arguably emerged with the stronger hand, having demonstrated that it could not only withstand Trump’s tariff threats, but inflict significant economic costs of its own.
Hence, the Trump administration’s presumed reluctance to wade into another trade war with Beijing by targeting major Chinese banks in an attempt to isolate Iran. Trump still has powerful cards to play – he could threaten to cut off Chinese financial institutions that process payments for Iranian oil, for instance – but this risks an equally forceful response.
To further complicate Trump’s calculus, Xi is due to travel to Washington for a high-profile meeting next month, just weeks before their initial truce is set to expire. If the US president decides to impose significant sanctions against Chinese banks in the interim, he risks blowing up their fragile détente and reigniting an economic contest that it is far from clear he will win. Xi will be well aware that, unlike him, Trump also has to weigh the effects of any economic blowback on the midterm elections due to be held in the US in November, at a time when the US president is already deeply unpopular and his party faces a tough fight to retain control of both the House and Senate.
Past form suggests that Trump will ultimately back away from his threats, as he has done before, when confronted with the likely impact on the US bond and stock markets, and conclude that targeting China will not help to extricate him from his unwinnable war with Iran. Yet this assumption carries its own dangers. If Trump comes to believe that his threats are no longer being taken seriously by either Tehran or Beijing, he may feel compelled to take dramatic action to restore his waning credibility. By all accounts, there is nothing Trump fears more than looking weak.
[Further reading: Donald Trump’s one-sided bromance with Kim Jong Un]
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