By Ben Sando
In April 2023, the US House members of the Select Committee on the Chinese Communist Party (CCP) clustered around a tabletop exercise simulating a Chinese invasion of Taiwan. One striking conclusion was the inefficacy of sanctions in stopping a cross-strait conflict after it occurs. The key finding: only by threatening sanctions early and unambiguously could the United States deter the People’s Republic of China (PRC) through economic means.
The Sanctions Targeting Aggressors of Neighboring Democracies with Taiwan Act (STAND with Taiwan Act) -introduced in the US Congress by Senator Dan Sullivan (R-AL) would codify such sanctions in the event of serious armed aggression by Beijing against Taiwan. The bill is the latest step in a sustained effort by Sullivan to marshall Congress to participate in deterrence against China. During a recent visit to Taiwan alongside Sullivan, Senator Tammy Duckworth, a Democrat from Illinois, announced her support for the bill. This marked the first instance that the legislation has achieved bipartisan support and the bill is expected to be reintroduced with Duckworth’s co-sponsorship in the coming weeks.
Unique benefits of the STAND with Taiwan Act
It is generally uncommon for Congress itself to mandate a sanctions regime on a particular country. Congress usually passes legislation that offers authorization for a president to sanction foreign targets. Indeed, most of the cutting sanctions imposed on Russia after its full-scale invasion of Ukraine came from executive orders based on authorizations already available to the president. The primary benefit of the STAND with Taiwan Act is to offer a strategic advantage in deterrence, rather than granting the president new powers in economic statecraft. By codifying a minimum level of economic sanctions to follow in the event of a cross-Strait conflict, Congress would thus ensure that Xi Jinping (習近平) is certain about the economic devastation the PRC would face if it attacks Taiwan. Codifying sanctions into law is a kind of “costly signal” in deterrence that the US president is unable to replicate alone.
The STAND with Taiwan Act outlines a suite of economic measures strangling trade and investment with the PRC. Based on a draft of the soon-to-be reintroduced edition of the bill – shared with the Global Taiwan Institute by the Office of US Senator Dan Sullivan–the measures include:
- Freezing the assets of and denying visas to senior PRC officials and CCP members.
- Freezing US-based assets of PRC state-owned banks and barring them from the US financial system.
- Freezing the US-based assets of other entities owned by or affiliated with either the Chinese state or the CCP.
- Secondary sanctions barring financial institutions registered in the US from conducting transactions with the PRC.
- Barring PRC entities from US equity markets.
- Preventing US financial institutions from investing in PRC high-tech industries or PRC state-owned enterprises.
- Barring exports of US-origin energy to the PRC, and US investments in PRC energy production.
- The revocation of permanent normal trade relations (PNTR) with the PRC.
The sanctions proposed under the STAND with Taiwan Act are as extensive as the ones placed on Russia after its full-scale invasion of Ukraine in 2022. The critical difference is that the sanctions under the STAND with Taiwan Act can be signaled well in advance of a planned invasion by the PRC, offering a deterrent effect that the Russia sanctions, which were instituted after Moscow attacked Ukraine, could not. An initiative by Congress to codify sanctions offers the US president workarounds to two obstacles in signaling economic deterrence: one of which is practical, while the other one is strategic and uniquely related to the case of Taiwan.
The first obstacle that a US president may encounter when signaling deterrence based on economic sanctions is that there are few established pathways to – for lack of better words “put it in writing.” Although the president can verbally announce a set of economic responses to PRC aggression, words alone cannot codify this commitment in a written document–the traditional bedrock of deterrence–as is the case for military alliances.
Alliance treaties signal to all parties that mutual defense is the concrete consequence of an attack. There is no analogous practice in economic deterrence (even though some scholars have proposed such methods). The STAND with Taiwan Act is the closest Congress has come to an alliance treaty based on economic tools in recent memory. Just like an alliance treaty based on mutual defense, the Act will “tie the executive’s hands” in the event of a conflict and commit the United States to a devastating economic response, thus offering a credible deterrence to CCP aggression.
The second obstacle to a president providing an economic deterrent is the US executive branch’s long-held reluctance to outline a clear position on defending Taiwan with force, an approach some have termed as “strategic ambiguity.” This policy is a product of unique historical developments related to Taiwan. Since the United States switched diplomatic recognition from Taipei to Beijing and abrogated the Sino-American Mutual Defense Treaty in 1979, the US government has never ruled out the use of force to defend Taiwan.
At the same time, the United States has neither committed to using force – a policy that both discourages Taiwan from declaring independence, and dissuades Beijing from unchecked aggression. As a result, the US president generally steers clear from providing concrete details regarding what the government will do in the event of a cross-Strait conflict. This tendency inhibits clear messaging regarding economic sanctions that could be enacted in response to an invasion. The more details the executive provides regarding the economic sanctions that would follow a PRC invasion, the more the executive will face pressure to clarify a potential military response.
If the president articulates an unequivocal set of economic responses to PRC aggression but remains reticent about military measures, Beijing may be encouraged to believe that the White House will employ only economic tools to punish an invasion. A congressional initiative to codify economic sanctions would circumvent this problem, as it allows the president to remain ambiguous about military responses to PRC aggression while delegating responsibility for economic threats to Congress. It is unlikely that a clear signal from Congress on economic punishments would have the same consequence of weakening the credibility of a president’s military response.
Obstacles to passage of the STAND with Taiwan Act
In spite of the STAND with Taiwan Act’s advantages to US deterrence, meaningful obstacles remain to its passage. The first barrier is skepticism among policy analysts regarding the power of economic sanctions to deter armed aggression. Critics point to the United States’ failure to deter Russia’s 2022 invasion of Ukraine through economic threats.
Notably, however, the sanctions that Washington threatened prior to Moscow’s invasion on February 24, 2022, were far weaker than the economic punishments the United States and allies eventually imposed after Russia’s attack. In failing to communicate the extent of the punishment Russia would face due to their aggression, the United States and allies undercut the mechanism for deterrence – which necessitates that a potential aggressor comprehends the full consequences of action before taking it.
By communicating a minimum level of punishing economic sanctions, the STAND with Taiwan Act would redress the failures of US deterrence towards Russia and offer a major threat to the PRC economy if the CCP decides to attack Taiwan. The CCP has long based its political legitimacy on the continued economic prosperity of China, and sanctions of the severity outlined in the STAND with Taiwan Act are potentially sufficient to deter CCP leaders from armed aggression against Taiwan.
Concerns about the ease through which Beijing could circumvent sanctions if imposed, and the potential fallout to the US economy, represent another obstacle. Western policymakers and analysts were left disappointed by the enduring strength of the Russian economy despite the sweeping sanctions imposed by the West. The Russian ruble has been remarkably resilient and Russia continues to export its signature economic output, energy, through intermediaries. Some suggest that the PRC will be similarly able to evade a West-imposed sanctions regime and perpetuate its export-driven model of economic growth. Nonetheless, China’s complex economy and reliance on the manufacturing sector will likely make sanctions evasion far more challenging.
Unlike Russian exports, China’s traded goods are not well positioned for sanctions evasion. Since most of the PRC’s exports are manufactured goods designed for consumption by households or specific foreign firms, it is unlikely that PRC manufacturers will be able to export manufactured goods via intermediaries and blur their proof of origin, as Russia has been able to do with exported oil and gas. Meanwhile, Global South countries – which have played critical roles in soaking up sanctioned Russian energy – lack the market size and economic complexity to absorb PRC manufactured goods in industries such as electronics, machines, and pharmaceuticals.
Moreover, the US and PRC economies are far more deeply intertwined than the economies of the United States and Russia. At least 15 percent of the PRC’s total exports of which 80 percent are manufactured goods, reach the United States. In contrast, 6 percent of Russia’s 2021 exports (the year prior to Russia’s full-scale invasion) were destined for America, and only one-tenth of those exports were from manufactures. China’s economy is significantly more vulnerable to disruptions from US trade and financial sanctions.
For the same reason that the United States has much more leverage over the PRC’s economy, sanctions on China would have a much more disruptive effect on American citizens’ livelihoods than the Russian ones. Consequently, members of the US Congress may balk at the idea of passing the STAND with Taiwan Act, which would require these disruptive sanctions in the event of an invasion of Taiwan. Some may prefer to leave economic punishments unexpressed and grant the US president leeway to soften an economic response to a PRC attack, or avoid one altogether. This is a tempting approach, if one believes that there is a scenario under which the United States would not issue a major economic response if the PRC invades Taiwan. After all, why commit the United States to sanctions if it does not seek to actually impose them in the event of a PRC invasion? This consideration may lie at the heart of reluctance to pass the Sullivan-Duckworth bill.
A simple counterpoint would recall the consternation that Western populations felt in the days after Russia poured into Ukraine with unrestrained force. The reality of the total assault, and the images and videos that accompanied it, jolted the West into consensus that the aggression could not go without serious punishment. When this reality set in, sanctions that had at one point been actively ruled out, such as the exclusion of Russian banks from the Society for Worldwide Interbank Financial Telecommunication (SWIFT) were adopted. Yet, by the time that these crippling sanctions had been put in place, the moment for deterrence had already passed. In short, whether or not the STAND with Taiwan Act is passed, it is likely that the United States and allies will implement major sanctions on the PRC if it invades Taiwan. It would be deeply regrettable and strategically foolhardy if the sanctions were drawn up only after they could have had a deterrent effect.
It will require a sustained effort to pass the STAND with Taiwan Act. Passage of the bill would mark the most consequential legislation on Taiwan since the 1979 Taiwan Relations Act, which reformulated America’s unofficial relationship with Taipei after Nixon’s pivot to China. The bill would legally bind the United States to Taiwan’s defense in a way it has not been since Washington abrogated its mutual defense treaty with Taipei in 1979. Given that the act was proposed by a Republican senator, the legislation may find more purchase if the Republican Party wins control of the US Senate in the 2024 elections. Whatever the outcome of the STAND with Taiwan Act, a US deterrent based on economic measures must be outlined firmly, clearly, and early. Codifying economic sanctions via the STAND with Taiwan Act would achieve all of these.
The main point: Passage of the STAND with Taiwan Act would boost US deterrence against a PRC invasion of Taiwan by ensuring unambiguity regarding American sanctions. The bill allows the US Congress to take the lead in economic deterrence and preserve the US president’s flexibility in a military response. Given China’s economic interdependence with the United States, it is unlikely that Beijing could evade sanctions in the way Russia has done since its 2022 invasion of Ukraine.
