Can China counter US sanctions with its trade power? | Counting the Cost

Added: 2026-05-12

[00:00:14]Hey there, I'm Scott Mlan. This is Counting the Cost on Alazer, your look at the world of business and economics.

[00:00:19]In a rare act of defiance, China openly pushes back against US sanctions and tells its companies accused of buying Iranian oil to ignore Washington's penalties. But can Beijing really challenge Washington's financial power?

[00:00:35]From rare earths to technology, China is increasingly using export controls to leverage its power over supply chains.

[00:00:43]But can it counter US sanctions? or will Beijing and Washington diffuse their economic tensions? Businesses and companies are caught in the middle. Are they now being forced to choose between the US and China? And can global trade still function between rival systems?

[00:01:07]Signaling a more aggressive stance, China is now pushing back more openly against US economic pressure. Beijing has ordered its companies to ignore American sanctions in a rare act of defiance while expanding export controls on rare earths and critical technology.

[00:01:23]The rivalry between Washington and Beijing is extending well beyond tariffs into supply chains and access to key industries. For businesses working across both markets, the challenge is growing. Companies are navigating competing political demands, regulatory risks, and shifting trade restrictions.

[00:01:41]Presidents Donald Trump and Xiinping are meeting this week. But can both sides stabilize relations or is the global economy becoming more fragmented? Finton Monahan reports.

[00:01:54]Iran's oil industry has long been under US sanctions. But despite this, some are willing to defy Washington and continue to do business with Thran.

[00:02:04]The US accuses China of buying 90% of Iran's oil exports. This is allegedly processed in privately owned facilities known as teapot refineries.

[00:02:14]Now those refineries are in the crosshairs of the United States government. In April, the US Treasury Department sanctioned a number of Chinese firms, including Hungle Petrochemical, accusing it of buying billions of dollars of Iranian oil, a charge the company denies. Now, China is pushing back. China consistently opposes illegal unilateral sanctions that lack basis in international law and urges the US to stop its wrongful practice of abusing sanctions and longarmm jurisdiction. China will firmly safeguard the legitimate rights and interests of its enterprises.

[00:02:51]It's activated a law designed to counter foreign sanctions. Businesses or individuals facing restrictions must notify the government. The Commerce Ministry can then issue an order forbidding them from complying with the sanctions. Failure to do this could result in fines. This forces businesses to make a difficult choice. Defy US sanctions or defy the Chinese government's orders. Hungly petrochemical was the first time China has used this counter measure, but it may not be the last.

[00:03:21]The United States has accused several Chinese firms of supporting Iran's war effort and helping Tehran procure weapons.

[00:03:29]They've been placed under sanctions and the Treasury Department warned that financial institutions could be next.

[00:03:35]>> Two Chinese banks received letters from the US Treasury. I'm not going to identify the banks, but we told them that if we can prove that there is Iranian money flowing through your accounts, then we are willing to put on secondary sanctions.

[00:03:50]>> China first row.

[00:03:51]>> Trade relations between China and the US have been fraught since Donald Trump returned to the White House in 2025. The US imposed sweeping tariffs on most of its trading partners, but the heaviest were placed on Beijing. The administration called it retaliation for China's import barriers.

[00:04:09]US export controls on advanced semiconductors have also made things difficult for China's tech sector.

[00:04:15]Washington has prevented Beijing from getting the most advanced types of microchips.

[00:04:20]Meanwhile, China's vast deposits of rare earth minerals have given it a powerful weapon of its own. It controls a large proportion of global supply and it's used export controls on this valuable input to put pressure on the US. The two powers reached a truce in their trade war in October, but it remains fragile and temporary. Donald Trump meets Chinese President Xiinping this week and they face the challenges of overcoming their differences over Iran and charting a path to a more stable trade relationship. Finton Mahan, Al Jazer for counting the cost.

[00:04:56]Well, sanctions are used by the United Nations as well as by individual states.

[00:05:00]They impose economic penalties on countries, companies, and individuals to force a change in policies. These include trade restrictions, asset freezes, and travel bans. The United States is the most prolific user of sanctions. It's placed restrictions on dozens of countries over the years.

[00:05:16]Russia was heavily sanctioned after its invasion of Ukraine. Others like Cuba and Iran are also under wide-ranging restrictions. The recent moves against Chinese oil firms are what's called secondary sanctions. They punish third nations for trading with sanctioned states. US sanctions are made stronger by its ability to cut off access to the global financial system. But this has also pushed some sanctioned countries to move away from dollar transactions. In recent years, the Trump administration has also increasingly used tariffs and export controls in a similar way to sanctions. All right, let's discuss further with our panelist. Joining us from London is Greg Swenson, a political economy commentator and chairman of Republicans Overseas UK. From Shanghai is Shawn Ryan. He's the founder and managing director of the China Research Group. And from Zurich is Maxmillian Hess. He is the founder of Enmatena Advisory, a political risk firm and an expert on international sanctions and politics. Greg Swenson, we will start with you over there in London. And I just want to play a clip for you of the Treasury Secretary Scott Besson earlier this month talking about really justifying the need for sanctions on China. Listen, >> Iran is the largest state sponsor of terrorism and China has been buying 90% of their energy. So they are funding the largest state sponsor of terrorism.

[00:06:36]>> So China may seem like a bystander here, but Scott Besson, the Treasury Secretary says they're not. Do you agree?

[00:06:43]>> Yeah, I do. And I think that the Treasury Secretary has been, you know, really the star of the administration and I think he'll he'll have a a pretty significant presence in in China. Um he's in I think believe he's in Tokyo right now, but he he will be joining the president in China. So yeah, I totally agree with him that this this China is essentially funding uh the Iranian regime. Um and and by the way, we were we we in the US were funding in many ways the Iranian regime only a few years ago uh when we when we dialed down the sanctions or didn't enforce the sanctions. But um the Trump administration in the first term as well as Trump in the second term um did you know did a much better job of enforcing those sanctions.

[00:07:28]>> Sean, you're shaking your head there, but China is buying something like 80% of all of the oil that Iran is exporting. Why is Greg wrong?

[00:07:37]>> Yeah, I disagree with Greg that Scotty Bessant is the star of the Trump administration. I think he's been the one who's hurt American prestige more than any other cabinet member. Uh basically what's happened is uh Bessant has led the trade war and he's underestimated China's leverage over the United States and has overestimated American power. So yes, it's true that China buys about 20 billion US dollars of oil from Iran every year. That accounts for about 15% of China's oil needs, but here's the thing, Scott.

[00:08:10]China has all the leverage over the United States right now. And that's where Scotty Besson is wrong. It's not just the fact that China um oversees 90% of the world's rare earths. It's also that they produce about 95% of antibiotics and about 100% of ibuprofen.

[00:08:27]And we're not even talking about chrom, nickel, copper, and all of the refining and smelting that China has upstream. So when Trump comes to meet with Chairman Xi this week, it's very clear that China is going to push a very hard bargain because they have all of the leverage over the United States. And it's really largely Scott because Scotty Bessant has egg all over his face by underestimating China's power right now.

[00:08:54]>> Greg, has Sean made a good point? I mean, the fact that China is vocally pushing back and telling companies, you must ignore US sanctions. I mean, doesn't that prove Sean's point that they hold all the leverage here, or at least a lot of leverage?

[00:09:09]>> Well, no. I think they they'll they'll employ bluster. I mean, that's typical, and I wouldn't really trust anything that they say, first of all. But secondly, look, I I agree there's some leverage obviously in rare earths. There there's no doubt about that. the president's made a point of opening up the you know mining permits in the US.

[00:09:28]You know that's something that in the long term is has got to change this dependency on rare earth minerals from China. It's a mistake that we've made for the last 20 years. So there is some leverage but not all the leverage. I think that's a bit much. Um look still dependent on exports much more than the US is. uh that you know 40% of their uh you know they only get only 40% of their economy is is from consumption whereas it's 70% in the US. So they're they're much more dependent on trade than the US is. Yes, there is some leverage with rare earths and and pharma but it's not uh I wouldn't call it you know all the leverage at all. That's a bit much.

[00:10:07]>> Max, let's bring you in here. A lot of hay is being made over China's decision to defy or order companies to defy these US sanctions. Is this symbolic or is this a real strategic shift? In other words, is China's bark maybe a little worse than its actual bite?

[00:10:23]>> No, I think this is a really important landmark moment for China to quite openly come out and oppose these measures. I think what's really important to understand here is that there's been a drift by China, a slow one, since Trump returned to the White House to move away from compliance with US sanctions. We saw that in particular uh with US sanctions that were imposed on Russian uh LNG projects. China did not buy them for over a year uh gas from that Arctic 2 LNG project after it was sanctioned and then beginning last autumn uh began to do so began to channel it through one import terminal in China is now moving here to push back against the US's action. And I think this is where we see some of the risks of the overreach of these geoeconomic threats from the United States is that the more they cause China to push back, the weaker the sanctions regimes and the weaker these geoeconomic tools become.

[00:11:21]They have been so important to US foreign policy goals, whether one agrees with them as a Democrat or Republican with restricting Iran, restricting Cuba, restricting Russia. um in Russia's case in particular in being able to wage an even conflict against the Kremlin as it seeks to devastate Ukraine and threaten Europe and other traditional US allies.

[00:11:42]Iran, yes, is a destabilizing actor in the Middle East and certainly is an active threat against Israel. One can debate what level of a threat that it is there. But I think the priorities of the Trump administration have been so jumbled and have also come amid the use of these economic tools against China that Beijing has seen itself as having no choice other than to push back.

[00:12:02]Beijing did not want at the beginning to say, "Oh, we're going to put ourselves fully in the Russian camp. We're going to put ourselves fully in the Iranian camp." But as Trump came out and targeted it with tariffs and then saw Beijing saw that it too could push back and it could use these geoeconomic tools and export controls on its own, that has created a whole new world of economic warfare and the US's predominance uh and strength is increasingly challenged.

[00:12:28]Beijing might not be as aggressive an actor as Iran and certainly not as aggressive an actor as Russia, but it has said, "Hey, if you're bringing the fight to us, we're going to push back."

[00:12:38]And it is a competent player there.

[00:12:39]Quickly, Max, do you think that these sanctions might backfire in the way that it may push countries away from using the US dollar toward other currencies like, let's say, I don't know, the Chinese yuan?

[00:12:52]>> I think the US dollar and the so-called dollar order is actually a far more robust system than people give it credit. Max, sorry, let me just challenge you on that for a second because the price of gold has more than doubled over the last two years. Clearly people are seeing potential weakness in the dollar as the global reserve currency.

[00:13:11]>> Sure. I mean gold is not an interestbearing asset. It cannot serve to be a fundamental replacement of the global economic order. If we based everything on gold, we would be a lot poorer all around. That doesn't mean you can't buy it or invest in it as a hedging assets. And many central banks and private investors have done so. But it's not a basis for a rival economic order. If you want a new currency system, you can't go back to history.

[00:13:34]you have to go to what's new and what's next. Beijing has a long running and I think a long-term agenda, but it's nowhere near having the Chinese yuan replace the US dollar. There's still significant uh capital controls in China. Those would have to be lifted. I do think the US dollar's value is likely to continue to decrease but the US dollar as sort of that core node of international trade of international finance of the thing that banks in third countries like to lend in uh which is really the key motivator there I think that is relatively robust now what I would say is it used to be anti-fragile it used to be something that actually gained in terms of geopolitical shocks almost all of the financial and military crises of my lifetime going back to the 1990s in the dotcom bubble. 2008 2014 15 oil price collapsed co the dollar strengthened in all of those and US yields compared to others uh other major developed market yields went down since Trump came back in and since he issued his want and threat on the international economic quarter with his tariff moves last year something that I think is economically benal we've seen that trend break once upon a time Republicans believes in free trade and competition I think we could have that with China again but the Trump administration has decided they don't want to go that way >> okay let's Greg let's quickly go back to September 2024. This was then former President candidate Trump speaking at the Economic Club of New York and he was talking about his approach or his wouldbe approach to sanctions. Listen, >> if we lost the dollar as a as the world currency, I think that would be the equivalent of losing a war. That would make us a third world country and we can't let it happen. So, I use sanctions very powerfully against countries that deserve it and then I take them off because look, you're losing Iran. You're losing Russia. China is out there trying to get their currency to be the dominant currency as you know better than anybody. All of these things are happening. You're losing so many countries because there's so much conflict with all of these countries that you're going to lose that and we can't lose that. So, uh I want to use sanctions as little as possible. So, Greg, isn't President Trump risking the exact thing that he was warning about in 2024, eroding the value of the US dollar?

[00:15:54]>> No, I don't think so. I mean, as Max pointed out, yeah, the the value of the dollar is is a lot lower than it was 5 years ago. That's for sure. In terms of just printing too many dollars, but in terms of the being a reserve currency, it's actually in a better position now.

[00:16:08]You know, I know that bricks and and and China were trying to, you know, have alternatives to the dollar. Now, all these so many uh countries are coming to the US for to open swap lines. So, I think that the dollar is in a much better position again, thanks to the president, but also to Scott Bessen as Treasury Secretary. And so, it's it's it's in a better position as the world's reserve currency now than it was a year ago.

[00:16:34]>> And Sean, your response very quickly.

[00:16:37]Yeah, really disagree. I think Greg's trying to get a job advising Scotty Vesson. It's very clear that the rest of the world is moving away from the US dollar because it's not just Trump, it's also Biden weaponized the US dollar, weaponized technology. So, let's take a look at what's happened. The Chinese government has reduced their US dollar reserve holdings from 1.4 trillion to about 680 billion US. you're seeing now that 40% of crossber transactions into mainland China are actually done in the remn. So obviously I agree with Max to some extent that the US dollar is still going to have primacy but it's very clear that the global south nations are going to start to do more swaps with China. They're going to want to get the R&B as a reserve currency, maybe account for 10 20% of their overall holdings.

[00:17:26]You're already hearing that there's rumors that there's going to be a petro yan that's going to replace the petro dollar where China is going to buy oil from the Middle Eastern countries in the remn. Um it's very clear that the global south is worried about holding US dollars because they're worried about becoming the next Russia or the next China. And here's the key. Wealthy Chinese and wealthy other people from the Middle East and from other nations are saying look at what they did to the Russians in Europe. people who were innocent of any attack by Putin and they had all of their money confiscated by the British. So a lot of wealthy people are going to say, you know what, let's go into the rem because we can trust that the United States is not going to follow the rule of law, but the Chinese will, Scott, big changes are are happening over the next 10, 20 years.

[00:18:14]>> Okay, gentlemen, it's also important to make clear here that China also uses trade restrictions as a tool to secure policy goals. It's tripled its use of export controls in the past five years.

[00:18:26]Its biggest weapon is its domination of rare earth minerals. It mines more than 60% of global supply. Rare earth is vital for the production of many high-end electronics. In 2025, China cut US access to those elements in response to restrictions on imports of advanced semiconductors. In 2010, Beijing cut off supplies to Japan as tension flared over a territorial dispute and Australia lost access after it called for an investigation into the origins of the corona virus pandemic. And the Chinese government is increasingly intervening in international business deals. Last week, it ordered tech giant Meta to undo its acquisition of AI startup Manis.

[00:19:09]China also uses sanctions. These usually target individuals, companies, and NOS's. They're often imposed in connection with Taiwan, Tibet, and Hong Kong issues China sees as interference in internal affairs. Sean, look, China has long railed against the use of unilateral sanctions. But aren't they also guilty here?

[00:19:33]Yeah, I think there's a little bit of hypocrisy, frankly, Scott. So, I dislike it when the United States says they're going to put on economic sanctions on China and they're not going to sell high-end Nvidia chips to China. I think that's wrong of the United States because part of it is it's about ruining the American tech stack. So, the Chinese are then going to go out and focus on indigenous innovation and make up their own semiconductors. And I also think it's just wrong because it hurts China from being able to grow economically.

[00:20:00]But the reverse is also true. Frankly, Scott, I don't like China putting economic export controls on rare earths because that's going to hurt other countries to be able to power the 7 trillion US dollar consumer electronic economy. And it's also going to backfire on the Chinese because you already see the Americans are trying to build up their reserves in um rare earths, which is why they're t looking at taking over Greenland or looking to take over Ukraine because there's rare earth deposits in all of these countries. And most importantly, it's going to force them through Australia's lioness to try to build up refining because actually, Scott, rare earths are not that rare.

[00:20:38]They're found everywhere. The key is refining ability, which China still controls 90%. But I think this is going to backfire on the Chinese. If I was advising Chairman Xi, I would not have been so strong in threatening or holding the sword of Damocles over other nations by threatening them not to export rare earths anymore. It is a little bit hypocritical. Max, do you think that ultimately companies are going to have to choose here whether to do business with the United States or to do business with China because these sanctions are going to make it too difficult to keep one foot in both camps?

[00:21:13]>> I don't think that that is very likely and I think we're more likely than not going to see President Trump make some significant concessions in Beijing over the coming 48 hours. We've already seen some push back from some corners of his own party about the potential for trade deals with China and investment agreements being reached. And remember, Donald Trump, who campaigned on primarily using these economic tools against China and seeking to conrain China, now has increased tariffs on almost everybody else. And actually, when you look at the differentials in tariffs in China versus Mexico and other traditional US allies, Beijing is not overall a loser here. But the whole world is losing. All of these trade measures, all of these tariffs, all of these sanctions ultimately serve to stifle competition, serve to stifle trade, serve to keep us in this sort of low growth economic period we're in.

[00:22:03]Remember, China is far below the heydays of its 8% growth, over a decade a grow, below 5% now. Europe is stuck in the low single digits at, you know, barely above 1%, able to get above that. The US is also sluggishly growing. I mean, Trump keeps talking about getting back above 3%. uh something that is increasingly unlikely and these war in the Middle East is dragging down on everybody. So I don't think anybody's going to be forced to choose at the end of the day. In some ways Trump is not significantly committed to decoupling and I don't think Beijing has signaled that that's its priority either. It's been a reactive actor here. But everybody loses uh not tremendously but incrementally.

[00:22:44]Um, Greg, President Trump obviously and President Xi are going to be meeting uh in Beijing this week, but President Trump is now in the midst of a war, currently in a ceasefire in Iran. Um, the Straight of Hormuz is still closed.

[00:23:00]Can you really say that Trump is going into this meeting in Beijing in a position of strength?

[00:23:06]>> Yeah, I in many many respects, yes. I think the one the other card that I think Xi has is that he's holding Jimmy Lie in in a prison and in Hong Kong and I think that's something that President Trump really wants and so there might be a concession or two that come out of that from President Trump because it's you know politically I think would be a big win for the president and I think a big win for Xi as well. So so I think you know we we could see something there. I I think that President Trump still holds a lot of other cards. We're the biggest exporter big biggest producer of oil and gas in the world right now. So we're not suffering here in the US as much as other economies are. I'm not advocating that. But but I do think that the fact that we are the biggest producer. Natural gas prices are actually at a 17-month low in the US and yet they're up 80% in Europe and up 100% in Asia. So, so I think you know the president's in a confident position because the US economy is actually doing quite well in spite of the the uh the straight of horos and in spite of the war in Iran.

[00:24:12]>> Sean, China may not be in the midst of a war right now, but it's also weak in other ways. It has a huge public debt.

[00:24:17]It's struggling with currency deflation.

[00:24:19]Its housing bubble has effectively burst. I mean, given all of that, is President Xi maybe going to be looking for compromises here?

[00:24:28]>> Not really. I think China wants to set a stage to the world order and say China's now on its way or already at the global superpower. I think for much of the global south we view what's happening with the United States and the straight of Hormuz as the Suez Canal example. I mean this is where the United States clearly has lost its power and its leverage over the rest of the world. Now let's be honest, China's economy is not booming. You're seeing that real estate prices are down 20 30%. Retail sales only grew three and a half percent last year, but exports went up over 14% last month because China has actually derisked from the United States over the last 10 years. In 2017, when Trump launched the trade war against China, exports from China to the US accounted for 17% of their exports. Now it's down to about 11%. So actually exports to America only account for about two 2 and a half% of China's overall GDP. So, China is much more of a domesticoriented economy than I think a lot of people realize. It's no longer 2015. It's now 2026. So, I think that China is going to push back very hard against Trump during these negotiations. I think for China, they just want to have don't see a ratcheting up of tension. But I don't see any accommodations, any cowtowing from Chairman Xi. In fact, I think it's going to be Trump who's going to cowtow, but he's going to sort of word it as a win towards MAGA. And I think these MAGA people are very cultish, and they're going to view anything that Trump says as a win, even if it's a lie.

[00:26:04]>> Greg, we'll give you the last word.

[00:26:07]>> Yeah. And I I surely don't agree with that. I mean, you've got onethird of the Chinese local governments in basically bankrupt. Um, you know, Sean pointed out that real estate prices are down. You know, overall properties typically 100% of of GDP. It got a little high a year or two ago at 120% of GDP. In China, it was 300% of GDP. So, the banking system is in big trouble in China because of the real estate bubble. So, I I don't I think the president's going to come away from this. And it might be win-win. I'm not arguing that it should be, you know, President Trump wins, Xi loses. I think it can be win-win here.

[00:26:45]>> Okay. Sean, very quickly, your response.

[00:26:48]>> I really feel like Greg is working for Scotty Bessant and he's underestimating the strength and vibrancy of China's economy. There are weaknesses, but don't overestimate America's strength and underestimate China's power. It's a lot stronger than people realize in DC apparently.

[00:27:06]>> Gentlemen, it's a great discussion, fascinating debate. We appreciate you being here. Greg Swenson, chairman of Republicans Overseas UK. Sean Ryan, founder and managing director of the China Research Group. Max Hes, founder of Enmatana Advisory. We appreciate all of your time today.

[00:27:21]And that is it for our show. You can get in touch with us on X. My handle is scott Mlan. And make sure to use the hash AJTC when you do or drop us an email counting the cost at algazer.net.

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[00:27:42]All right, that is it for this edition of Counting the Cost. I'm Scott Mlan from the whole team here in Doha. Thank you so much for watching. The news is next here on Alazer. See you.