Rabobank’s Singapore-based global analyst Michael Every said China’s condemnation of sanctions against its ally Russia was frustrating the US and its allies.
Exporters are being warned not to bury their heads in the sand about the possibility of American sanctions against China should it step up its support for Russia’s invasion of Ukraine.
Unlike the tariffs imposed by former American President Donald Trump against China in 2018, the use of sanctions would have a much more direct impact on trade between China and third countries like New Zealand whose exports would face increasing scrutiny from the US Government.
Experts spoken to last week attached different probabilities to the likelihood the US will employ extensive sanctions against China, with some saying there was still only a modest chance given the massive fallout for global trade that would result.
However, all agreed the temperature was rising between the two superpowers following Russia’s invasion of Ukraine.
Rabobank’s Singapore-based global analyst Michael Every said China’s condemnation of sanctions against its ally Russia was frustrating the US and its allies.
“The probability is that you will have sanctions on Russia and other countries will try and get around them and the West will get annoyed and put secondary sanctions on them because otherwise they are paying all the costs of fighting Russia and these other countries are benefiting,” Every said.
He said the US fired a warning shot last week when it imposed travel bans on Chinese officials it accuses of repressing the country’s Uighur Muslims, as well as other ethnic and religious minorities.
“It is a minor sanction. It is not related to Russia but it is very obviously a shot across the bows that we are going to do this if you keep working with Russia against us,” he said.
A lawyer with sanctions experience, who spoke on the condition of anonymity, said the probable spark for direct US sanctions would be if China answered Russia’s calls for military help in its war in Ukraine.
“They would go very much in waves. Hoping that the early sanctioning would prompt the Chinese government to change their approach,” the lawyer said.
“You would start with Chinese politicians responsible for any decision to supply arms and then potentially look at the companies themselves and then the Chinese banks that facilitate these sorts of transactions would be next on the list.”
It is at this point the US’ stranglehold over the global trading system through the dominance of the US dollar would begin to be felt by NZ exporters.
Banks repatriating export receipts back to their NZ clients would need to be certain the Chinese customers making the payments were not sanctioned or associated with anyone who was.
Failure to do so risked hefty fines from the US government or banks losing their US banking licence and being cut out of the dollar system altogether.
Picking their way through the sanctions minefield was a costly and unwelcome exercise for the banks, the lawyer said.
“They just do not make enough money from the transaction to justify spending tens of thousands doing the due diligence to be comfortable receiving the funds,” they said.
Local banks were increasingly unwilling to facilitate exports to Russia.
The impact had been limited due to Russia’s relatively low ranking as NZ’s 20th largest trading partner.
The fallout from sanctions against NZ’s largest trading partner would be many times greater.
“If we are going to see sanctions on China and if they are more than just sanctions on the odd military official … if they actually cover a broad range of companies that import and export and a broad range of banks then we will see no end of difficulty for NZ businesses trying to comply,” they said.
The lawyer said there was no bail-out available to NZ exporters through a new global reserve currency that would bypass the US dollar anytime soon.
“I would say 60% of NZ’s trade is denominated and settled in US dollars,” they said.
“We are a long way from being independent of the US dollar and this is one of the reasons why our banks are so keen to comply with US sanctions.”
The lawyer warned NZ agricultural exporters against complacency.
“Yes, nobody ever puts a blanket prohibition on moving food and humanitarian goods,” they said.
“That is not a problem, but you cannot export food to a sanctioned person.
“You cannot receive payment for the export of food via a sanctioned bank.
“So you cannot say ‘I export food, so this does not concern me’.
“Yes it does because it affects the entire supply chain … it limits the number of people you can do business with.”
Dairy Companies Association executive director Kimberly Crewther acknowledged the potential for impact on NZ’s dairy trade.
“Generally food is exempt on a humanitarian basis but exporters also need to make sure that the broader aspects of food export facilitation are compliant and that can have a chilling impact on trade itself,” Crewther said.
