U.S. Threatens New Economic War on Iran by Targeting China & Tehran’s Other Top Trading Partners

The Trump administration has announced unspecified plans to further tighten sanctions on Iran, threatening other countries, including China, in the process. We speak to sanctions expert Nicholas Mulder about what he calls the “rhetorical” and “psychological warfare” of the announcement. For Iran, says Mulder, the announcement was not “really materially all that meaningful. And to the extent that they are, they hurt ordinary Iranians and not the government.” The impact on the U.S. relationship with China, however, could be much greater. If the U.S. does place secondary sanctions on Iran’s trading partners, the “U.S.-China trade truce might be unraveling,” warns Mulder. “The space for maneuver that the U.S. has in using these tools of very coercive economic statecraft has narrowed.”

Transcript

This is a rush transcript. Copy may not be in its final form.

ANJALI KAMAT: The Trump administration has outlined plans to tighten sanctions on Iran, warning that businesses, banks and other nations could lose access to the U.S. financial system if they continue doing business with Tehran. On Monday, Treasury Secretary Scott Bessent announced “Operation Economic Outcast,” which includes secondary sanctions on trade related to Iran’s oil, shipping, cryptocurrency, gold and aviation industries. Bessent said countries have a defined timeline to sever ties with Iran, but provided no details on which countries would be targeted, or when.

TREASURY SECRETARY SCOTT BESSENT: Treasury has mapped every node, every facilitator and every network that Iran has used to smuggle oil and evade sanctions. Beginning today, the actions of Treasury and other agencies will tighten the noose and block every potential source of revenue that funds the IRGC and the evil Iranian regime. We are enforcing a zero-leakage approach. There will be no minimal breathing space for the regime to rebuild its capacity to inflict terror against America and the world.

The final refuge of this regime is a mistaken conclusion of nations that still finance the Iranian threat in the hopes of evading it. It is no longer acceptable to operate in the gray spaces of this conflict. Countries cannot claim they are blind to enabling this activity.

ANJALI KAMAT: After Treasury Secretary Scott Bessent finished his remarks, he took questions from reporters.

REPORTER: You described this as an economic D-Day, but D-Day wasn’t a threat of an invasion, and the U.S. didn’t give a timeline to Germany. So, why not impose the sanctions today?

TREASURY SECRETARY SCOTT BESSENT: Well, we are giving everyone the opportunity to remedy bad behavior. Why would I want to blow up the global financial system?

ANJALI KAMAT: Iran has threatened to retaliate against the U.S. in a, quote, “seismic” manner. Iranian officials have said that any country supporting the new U.S. economic restrictions would be considered an enemy. This is Iran’s economy minister, Ali Madanizadeh.

SEYED ALI MADANIZADEH: [translated] Naturally, they want to wage economic terrorism against us. And we have our own tools, as well. We know how to play this game. This time, they should not think the response will be purely defensive and that we will only defend ourselves. They should also expect us to go on the offensive. The era of an unpopular world is over. As you have seen, two of the world’s major countries rejected these new sanctions and this new plan and refused to go along with them. We are almost certain that many other countries, whether officially or unofficially, will also refuse to accept them. And God willing, they will fail.

ANJALI KAMAT: To talk more about the U.S. economic war against Iran, we are joined now by Nicholas Mulder. He’s an associate professor of history at Cornell University and a specialist in sanctions. He’s the author of The Economic Weapon: The Rise of Sanctions as a Tool of Modern War.

Nicholas Mulder, welcome to Democracy Now! Your response to this announcement yesterday? There’s not a lot of details on enforcement. And what does this mean for China? China is Iran’s largest economic trading partner, buys over 80% of its oil, and President Trump is set to meet with the Chinese premier next month.

NICHOLAS MULDER: Yeah. Thank you for having me.

I think that this announcement really shows that the United States is trying to increase the pressure on Iran, but is primarily doing so at the moment by rhetorical means and a kind of psychological warfare. Of course, Iran has been under a naval blockade imposed by the United States since June. The Iranian economy is feeling the pressure of that. And the announcement yesterday was very short, as you mentioned, on details. There was a hint that a major global financial institution might be designated under the sanctions soon, but that, too, was left very vague. It could have been a veiled threat towards China. It could have been a sort of general attempt to create a chilling effect around these transactions.

The reality is that at this point there are relatively few sanctions that the United States can take that directly affect Iran. There were some things thrown in to the announcement and to the designations by the Treasury, such as a ban on all remaining remittances to Iran, a ban on remaining academic and sports exchanges. But these really just seem gratuitous ways to try and show that this is an attempt to isolate Iran even further. They weren’t really materially all that meaningful. And to the extent that they are, they hurt ordinary Iranians and not the government.

The real way that the U.S. is going to try and enforce these sanctions is by putting pressure on third countries trading with Iran, and I think that’s where it’s going to be an open question whether these sanctions will be as forceful as Bessent wants them to be. The big trading partner, as you already mentioned, is China, but we’re also talking about Pakistan, Turkey, India and a number of other countries that trade a lot with Iran and, you know, that see that they have every right to, that these are, at the end of the day, just American sanctions — they’re not international legal measures. And these countries claim, and for themselves, the right to sovereign — make sovereign decisions about who they can trade with and who they cannot. The Chinese have already announced that they’re going to not just ignore them, but even make sure that countries and companies within China will not comply with them. And recently Chinese courts have also begun to put sanctions on companies that complied with American sanctions. So, I think that this is no longer an empty counterthreat, either.

And the stakes are pretty high when it comes to the relationship with China, because, of course, the United States is in a very fragile truce, if you could still call it that, on the trade war. So, any excessive pressure on China, I think, is going to be very likely to reopen that. And there’s already been a tit-for-tat spate of measures in the last few weeks dealing with tariffs about overcapacity, restrictions on drone exports and imports, that suggests that this U.S.-China trade truce might be unraveling. And I think this Iran sanctions episode is really likely to further unravel that if the U.S. goes through with secondary sanctions enforcement.

JUAN GONZÁLEZ: And, Professor Mulder, about this issue of potential sanctions on large financial institutions, most people are not aware that about four of the 10 largest banks in the world are headquartered — are Chinese banks headquartered in China. If you include HSBC, which is in Hong Kong, it’s half of the largest financial institutions of the world have direct ties with China. So, what would be the impact of any attempt to sanction, for instance, a major Chinese bank or institution?

NICHOLAS MULDER: So, initially, it would depend on what kind of sanctions are placed on that bank, whether this is blocking them from participation in dollar markets or whether it’s done through a full blocking order. There’s a different range of sanctions that the U.S. could take. The impact for the Chinese would be that they would have difficulty immediately accessing the U.S. financial system, but that cuts both ways. They have a lot of reserves saved up. And it would almost automatically also have a major effect on Asian financial markets. These Chinese banks hold large amounts of reserves in Hong Kong, but also in Singapore and other markets, and that will cause liquidity issues there. So, I think that this is something that can’t really be sized up that quickly.

Like you mentioned, the the largest bank, Industrial and Commercial Bank of China, ICBC, it’s the the single largest financial institution by assets, and so we’re dealing really with hundreds of billions of dollars in assets. I very much doubt that the American government, at this particular moment, would choose to put sanctions on China’s largest bank, given that the Chinese have also shown that they will immediately retaliate with rare earth export controls. They could retaliate by taking measures against all kinds of U.S. foreign investments in China. There is still, of course, a significant degree of American capital in China. So, they could counter-freeze, and that could very quickly escalate.

And at this moment, of course, we should sketch the broader picture here, which is that the United States has entered a period where its own sovereign debt, the Treasury market, is no longer as stable as it once was. The rates are very high. And Bessent has spent the last two weeks desperately trying to talk down the Treasury yields, trying to make sure that American government debt remains an attractive asset class to invest in. But bigger question marks have really emerged over that.

So, if he puts really aggressive sanctions on Iran, it will very quickly tend to backfire against American economic conditions. And there’s two ways. One of them could be through the China channel. The other one could be by further removing oil from global markets. If there is a significant oil importer — say, India — that is immediately and quickly cut off by American secondary sanctions, then what you might see is an immediate pass-through into U.S. inflation, expectations that interest rates are going to go up. We’re coming up against the Federal Reserve meeting soon, in the coming week, and an announcement by Kevin Warsh at the Jackson Hole symposium about interest rates, and that is certain to feed into the Treasury market immediately, and that would be exactly the opposite of what Bessent is trying to achieve.

So, I see that announcement of him yesterday and the way that he handled the questions as of a piece with his broader attempt to talk the bond market into submission, or at least a kind of quietude, to try and get the bond vigilantes off the back of the American Treasury. The issue is, of course, here that, you know, the bond market, as well as other countries, get a vote, as well, and the space for maneuver that the U.S. has in using these tools of very coercive economic statecraft has narrowed.

JUAN GONZÁLEZ: And I’m wondering also, the issue of the United Arab Emirates. Just before Bessent’s announcement, the UAE announced that it was ending trade relations with Iran. Can you talk about the significance of this? And in fact, while all these hostilities have been going on, trade across the Persian Gulf between the UAE and Iran has continued for all of these months.

NICHOLAS MULDER: Yes, so, the UAE has always been an important trading partner for Iran. There’s also a very large Iranian diasporic community there and people who move back and forth between Iran and the Emirates. And it has long been a hub for a lot of commercial companies, but that also includes the IRGC, Iranian state companies, as well as private entities. So, that’s long been the case.

It’s also been the case that the Emirates, of course, was a major target of the initial Italian — sorry, Iranian retaliation against the American and Israeli attack after February. But then, in the last six to eight weeks, Iranian attacks on the Emirates really fell off dramatically, and there’s been quite plausible speculation that this was because there was an arrangement that was reached between the Emirates and the Iranian government, and a certain modicum of trade was reallowed in exchange, perhaps, also for Emirati payments or unfreezing of frozen Iranian assets there.

Now, if the Trump administration, as the Emiratis appear to signal, has now reimposed these sanctions, and the Emiratis at least want to suggest that they are complying, two things can be happening: Either they have reimposed this, these restrictions, in which case they would invite pretty prompt Iranian retaliation, or they’re trying to take action against a certain big headline set of commercial activities, while allowing, under the surface, some of it to continue.

I think one should not underestimate the fact that the Gulf countries have been forced in recent months to really recalibrate their relationships, both to the United States but also to China and to a number of other countries. And they realize that the United States is less able to protect them, that American actions against Iran expose them to retaliation, that that means both increased assertiveness on their own part militarily and geopolitically, but also developing their own relations with regional powers. And that includes, eventually, I think, some kind of modus vivendi with Iran.

So, there’s definitely been, I think, a lot of signaling, but we cannot take the Emirati announcement completely at face value, either. The proof will have to be in analyzing commercial data and trade data in the months to come, and only in time can we tell if this is really what’s happening.

ANJALI KAMAT: Nicholas Mulder, how is this playing out in Iran? I mean, yesterday, the Iranian rial dropped to a record low of nearly 2 million to the dollar. But Iranian government officials continue to dismiss the Trump administration sanctions announcement. Is there a disconnect between the political defiance we’re seeing from the Iranian government and the actual impact of the sanctions on the ground?

NICHOLAS MULDER: Well, the sanctions have definitely had an impact, and the U.S. naval blockade, to be more specific, more still, since the beginning of June. For ordinary Iranians, of course, this war, which did not spare them in the least, has been horrific. On top of that, there’s major reconstruction costs that are now very difficult to finance because of Iran’s relative isolation. And what exports had been getting out of Iran, in the form of oil and other exports, now have also dropped off. So, Iran is no longer as free to trade as it wants. There are a number of overland routes that have been activated with neighboring countries, but those have a much reduced volume in terms of what they can sustain.

And I do think you’re right to suggest that the Iranian government — certainly, the people that now seem to be having the most influence over decision-making, a number of IRGC and military figures — believe that this economic blockade shows that the Americans are out of military options, and that actually they interpret this as a sign of American weakness. So, they’re not afraid to up the ante further and to threaten retaliation. And they seem also quite capable of carrying it out, if they so choose.

The question is: Whose negotiating position is going to strengthen further by that kind of escalation? Will time be on the side of the Trump administration, or is the Trump administration actually itself racing against the economic clock with, like I said, rising inflation in the U.S., a deteriorating bond market, midterms coming up? In Iran, the government seems determined to ride this out, even if it means that the population will continue to suffer further in the near term. So, yeah, that’s how I see the lay of the land as it stands right now.

ANJALI KAMAT: Nicholas Mulder is an associate professor of history at Cornell University and a specialist in sanctions, is the author of The Economic Weapon: The Rise of Sanctions as a Tool of Modern War. Thank you so much for joining us.

Coming up, we look at how local officials in Illinois are collaborating with federal immigration agents despite a state law barring the practice. Stay with us.

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ANJALI KAMAT: “El Hielo/ICE,” by La Santa Cecilia in our Democracy Now! studio.