Washington has also shown concern over the situation in Hong Kong in the last year. Congress has passed the Hong Kong Human Rights and Democracy Act of 2019 which aims to impose sanctions on those responsible for human rights violations in the city. Speaking to Express.co.uk about potential responses Washington could take in response to a controversial national security law, Professor Stefan Legge from the University of St. Gallen explained: “Right from its start, the Trump administration reckoned it had two sources of leverage over China: First, the US consumer market is of crucial importance to the Chinese economy, as reflected by the $472billion (£371.1billion) worth of US imports from China in 2019. Second, Chinese companies depend on access to global financial markets and the US dollar.”
Both sides have placed tariffs on each other’s’ goods.
Trump has long accused China of unfair trade policies and intellectual property threat.
China meanwhile has accused the US of curbing its rise as a global power.
Both sides have attempted to negotiate but so far have proven difficult.
Professor Legge continued: “Thus far, the Trump administration has attempted to use the first lever in order to gain concessions from Beijing – tariffs are still imposed on about $360billion (£283billion) worth of imports from China. Due to the recent worsening of Sino-US relationships and the upcoming presidential election, I expect Trump to consider making use of the second lever. The decoupling of financial markets could be the next phase of an escalating conflict between the world’s two largest economies.
“The impact of such financial decoupling depends on the precise measures chosen. The Chinese government is well aware of the domestic debt problem, causing a dependency on global financial markets. But there are mitigating factors such as the $3 trillion currency reserves, a substantial current account surplus, or the fact that the capital account is largely closed.
“However, the US dollar remains the number one global currency by far while the Renminbi has made only limited progress in being relevant for global trade transactions and financial flow.”
Robert Zoellick, a former World Bank President who was in the cabinets of both George HW Bush and George W Bush told a group of US executives: “The 20th century painted a shocking picture of industrial-age destruction; do not assume that the cyber era of the 21st century is immune to crack-ups or catastrophes of equal or even greater scale.
Hong Kong newspaper South China Morning Post raised the prospect of China being barred from the US dollar system.
Though this was dismissed as very unlikely but described as being no longer “unthinkable”.
Iran is also a nation that has been hit with sanctions that have limited its ability to use the dollar in international trade.
One the impact if Washington pursued a similar plan with Beijing, Professor Legge explained: “The Chinese central bank has gradually diversified its portfolio to reduce the dependency on the US dollar. But the greenback still marks the majority of Chinese foreign currency reserves. The comparison with the Iran case is difficult – even though there are some similarities: While Beijing holds 3.1 trillion USD reserves as of May 2020, Iran has 86 billion. As a fraction of GDP that is 22 percent compared to 18 percent. Both countries run a sizable trade surplus (i.e. exports exceeding imports) – 6.9 percent of GDP in China, 3.7 percent in Iran.
“But this is where similarities end. More than 70 percent of Iran’s exports are oil and partner countries can – relatively easily – diversify away from Iran if needed. Chinese exports are more diversified and much harder to compensate. Also, China is several times more important than Iran for US businesses.
“All said, I think Washington will tread more carefully in dealing with Beijing than Teheran. The stakes are higher and so are potential losses to the US.”
The diplomatic war of words between Beijing and Washington has been reignited with coronavirus.
In April, Trump claimed to have seen evidence the virus came from a Chinese lab.
Chinese actors have also linked the disease to US soldiers competing at the 2019 Military Games in Wuhan.