The answer, according to a new study, is a potential “yes”—but with big caveats.
Sanctions imposed on Russia provide the Group of Seven wealthy industrialized nations with a template for economic measures they can use in trying to prevent a crisis around Taiwan from flaring into war, according to the study, published jointly Thursday by the Atlantic Council, a Washington think tank, and Rhodium Group, a New York-based consulting firm.
But those tools will be trickier to apply to China, given how it is much more vital to the global economy than Russia—a fact that complicates efforts to deter Beijing through punitive economic measures, the study says.
“China has deep global economic ties that make full-scale sanctions highly costly for all parties,” with trillions of dollars in assets, trade and capital flows at risk of disruption, the study said. “Impacts of this scale make [full-scale sanctions] politically difficult outside of an invasion of Taiwan or wartime scenario.”
Tensions around Taiwan, a self-governing island democracy that Beijing claims as part of China, featured heavily in meetings that Secretary of State Antony Blinken had with Chinese leader Xi Jinping and other senior officials in Beijing this week.
After Blinken told reporters that Washington regards a peaceful resolution to Taiwan’s status as a foundational element of U.S. relations with China, a senior Chinese foreign ministry official accused the U.S. of “tampering with” its “one China policy.”
China’s Communist Party has vowed to eventually take control of Taiwan, by force if necessary. Xi has recently used economic, diplomatic and military tools to pressure Taiwan’s ruling Democratic Progressive Party—which has long advocated a unique Taiwanese identity—into acknowledging that the island and the mainland are part of “one China.”
China’s military, for instance, has engaged in increasingly bold maneuvers around Taiwan, sending aircraft and warships near the island with greater volume and frequency. After then-House Speaker Nancy Pelosi visited Taipei last August, Beijing responded by encircling Taiwan with rocket and ballistic-missile fire while testing its defenses with aerial and naval sorties—demonstrating China’s ability to cordon off the island.
The study by Rhodium and the Atlantic Council assessed the potential impact of economic measures that G-7 powers could impose in response to Chinese actions against Taiwan that fall short of an invasion, including a military quarantine, major acts of economic coercion and cyberattacks against the island.
Should tensions across the Taiwan Strait flare to crisis levels, G-7 countries could try to pressure Beijing with a range of economic tools, such as asset freezes, visa bans, export controls, restrictions on commerce, trade and investment, as well as the denial of access to the sanctioning state’s airspace and territorial waters, according to the study.
Some of these measures have already been used against Russia over its invasion of Ukraine, and also against Beijing on a much smaller scale than what would be used during a major Taiwan crisis.
Beijing has routinely criticized U.S. sanctions as unilateral attempts to assert long-arm jurisdiction against foreign entities and individuals, as well as weaponize economic and trade relations.
The U.S. and its allies would face tough choices in deciding how far to go in pressuring Beijing. In terms of financial measures, for example, a lower-scale response that targets smaller banks wouldn’t measurably hurt Beijing’s ability to finance military activity, while full-scale sanctions—such as measures that hit China’s central bank and “big four” lenders—could disrupt some $3 trillion in trade and investments flows, the study found.
Such a maximalist approach would be “highly costly and therefore unlikely except in the most extreme circumstances,” according to the study, which concluded that “the long-term strategic benefit” of financial-sector sanctions is unclear. It cited China’s ability to cushion the impact with its large trade surplus and efforts to boost its capabilities to circumvent sanctions.
Sanctions against Chinese industry would likely be narrowly targeted at specific companies and industries where China is highly dependent on G-7 countries, but where the U.S. and its allies rely little on Chinese exports, according to the study. It pointed to China’s aerospace sector, which is heavily dependent on foreign-sourced engines and avionics.
Meanwhile, sanctions against Chinese political, military and business leaders would be “largely symbolic” and likely have limited effect in changing Beijing’s behavior, the study said. It noted that senior politicians and military officials would likely be aligned with Xi’s Taiwan policy and have limited overseas assets that could be targeted by sanctions, while business people—already disinclined toward using force—have had their influence on policy diluted under Xi.
G-7 countries may also find it difficult to coordinate economic measures against China, given the high costs, likely uncertainties around Beijing’s intentions, and disagreements among G-7 members over Taiwan’s legal status, the study said.
The study recommends that the U.S. and its allies address these problems ahead of time by discussing among themselves — and with Taiwan—the “red lines” they want to set for Beijing, and what countermeasures they are willing to take if those boundaries are breached. It said they should also privately signal to China how far they are willing to go, as well as start taking legal steps—such as enacting necessary laws and regulations—to facilitate the use of economic sanctions to “boost the credibility” of their deterrence.
The study’s recommendations echo those offered by the Center for Strategic and International Studies, a Washington-based think tank, which published a commentary earlier this month arguing that the U.S. and its allies can create deterrence by “making clear to Beijing that any use of force against Taiwan would on its own impose enormous costs as well as trigger massive sanctions.”
Even so, going by the Russia example, “Vladimir Putin’s decision to launch his full-scale invasion of Ukraine demonstrates the limits of sanctions as a deterrent,” the CSIS commentary said. Furthermore, it said, the resilience of Russia’s economy in the face of sanctions shows countries can adapt to stress.
Xi has been working in recent years to harden China for confrontation with the U.S., such as by pushing Chinese industry to achieve self-sufficiency in critical technologies and limiting outside visibility into areas of the economy considered important to national security.
“In gaming out the use of economic coercion, it becomes clear that sanctions themselves will do little to impact Beijing’s calculations unless paired with a credible military threat,” the CSIS commentary said. “If Xi Jinping doubts the United States’ political will to militarily intervene in a Taiwan crisis, or if he believes that the PLA will win a quick and decisive victory, the threat of sanctions would be toothless.”
The Atlantic Council and Rhodium Group study likewise says economic measures would need to be used along with diplomatic and military pressure in trying to deter China from invading Taiwan.
Beijing has repeatedly rebuffed Washington’s efforts to improve communication between their armed forces, in what analysts say is a reluctance to accept guardrails that might encourage U.S. military operations along China’s periphery.
Blinken, who met Xi during a two-day China trip that concluded Monday, said Washington hasn’t reached an agreement with Beijing on reopening lines of communication between the two militaries.
“Recent breakdowns in military-to-military communication channels between the United States and China are of serious concern,” the study said. “Maintaining open communication lines and regular exchanges with Chinese counterparts is a key element in any risk-mitigation strategy.”
Write to Chun Han Wong at chunhan.wong@wsj.com