European Council on Foreign Relations urges “hard, fast” sanctions against China in event of conflict over Taiwan

The European Council on Foreign Relations (ECFR) is advocating for “hard and fast” sanctions against China in the event of a conflict over Taiwan. This approach is outlined in their policy brief, “Hard, fast, and where it hurts: Lessons from Ukraine-related sanctions for a Taiwan conflict scenario,” Taipei Times reported.

The ECFR suggests that the EU should leverage its economic power to deter China from invading Taiwan, specifically by targeting China’s access to the EU market, ECFR policy published earlier this month said.

The pan-European think tank brief, published on September 19 and written by senior policy fellow Agathe Demarais, aimed to draw insights from Western sanctions on Russia after its invasion of Ukraine and proposed sanctions deterrence against China in cross-strait conflict scenarios, as per Taipei Taiwan.

“China’s leader Xi Jinping has long affirmed that the “reunification” of Taiwan with the Chinese mainland is “inevitable”. One of the worst-case scenarios for such a “reunification” is a Chinese maritime blockade of the island, followed by a full-scale military invasion of the territory,” Demarais wrote.

“To prepare for this far from certain scenario, the EU and its member states need to start weighing their economic statecraft options against China, including financial sanctions and trade measures. In doing so, they can draw valuable lessons from the extensive sanctions they have been imposing on Russia since 2014,” she added.

According to Taipei Taiwan, the EU’s threat of sanctions against China could be “game-changing” as Beijing, like Moscow, would think it improbable for 27 EU member states to unite on sanctions, Demarais wrote.

Although China might threaten to retaliate against EU sanctions, “clear threats from the bloc would signal to Beijing that the costs of an aggression are even higher than those that the Chinese leadership already expects,” and Russia’s experience would prompt China to “think twice before brushing off Europe’s warnings,” she said.

However, traditional financial sanctions might not work as “China has spent years insulating itself from financial sanctions through ‘de-dollarization,’ ‘de-SWIFTing’ and the development of digital currencies,” she said.

Further, she emphasised that, China’s financial independence will soon make economic sanctions ineffective, but trade restrictions targeting its export-based economy could still be an effective leverage point for Europe.

By 2028, “threats of measures targeting China’s access to Western financial channels or currencies would be unlikely to alter Beijing’s calculus around Taiwan, as Chinese leaders are making fast progress toward financial self-sufficiency,” Demarais said.

“This means that Europe’s strongest leverage probably lies in trade measures targeting China’s access to the EU market,” she said.

China’s economic growth relies on exports of manufactured goods and that reliance “may well be its Achilles’ heel,” she said.

Higlighting, China’s dependence for employments on foreign demands, Demarais affirmed, “Exports account for nearly 20 per cent of China’s GDP, with nearly 40 per cent of these going to G7-EU economies,” while 100 million jobs in China depend on foreign demand, including at least 45 million from G7-EU economies, she said.

In her report, she also suggested that the EU and its G7 partners should institute sanctions targeting these goods, which make up 13 per cent and 9 per cent of total Chinese exports, respectively. While a drop in supply might be manageable for Western consumers in the short term, it would be extremely painful for China.

The EU and its G7 partners should institute sanctions targeting imports of noncritical, finished consumer goods, particularly electronics and low-end goods, which accounted for 13 per cent and 9 per cent respectively of total Chinese exports, she said.

“A drop in the supply of these goods would be manageable for Western consumers, at least for a while. But for China, joint G7-EU measures curbing the shipments of these products would be hugely painful,” Demarais said.

“This means that if deterrence fails and EU policymakers choose to impose sanctions on China, then they should go hard and fast,” she said.

Gradual sanctions escalation would risk “supporting Chinese efforts to build long-term immunity to financial sanctions,” and would make it unlikely that the EU and its allies could “engineer a balance-of-payments crisis in China through a seizure of the country’s central bank reserves,” she said.

The ECFR urged to discuss potential Taiwan-related triggers for sanctions on Beijing and consider the consequences of drastically reducing trade relations with China.

“European policymakers need to start discussing potential Taiwan-related triggers for sanctions on Beijing and map out the consequences of a drastic reduction in trade relations with China,” she said.

The EU would have to “think of financial compensation packages for those EU firms that will be most affected by sanctions and seriously beef up its ability to tackle sanctions disinformation,” she added.

European Council on Foreign Relations (ECFR) is an award-winning international think-tank focused on European foreign and security policies. They conduct independent research and provide a platform for leaders, activists, and influencers to share ideas and shape Europe’s global role.