Why US sanctions threats against China aren’t credible

The US's threats to impose sanctions on China due to Beijing's ties with Iran lack credibility. The country's economic infrastructure, particularly the bond market and the AI sector, are more vulnerable to shocks than China's. Should the US resort to imposing severe sanctions, it risks significant self-harm, including a surge in bond yields and a potential financial collapse.

China, on the other hand, boasts a resilient economy and a functional yuan payment system, known as the Cross-border Interbank Payment System (CIPS). The latter can easily replace SWIFT, the global messaging system facilitating dollar-based cross-border payments.

China's trading partners can swiftly switch to CIPS, rendering a SWIFT ban counterproductive. The US has been using sanctions against China in various ways, yet China has consistently managed to endure without a recession. The US seems to be out of options for a hot war, leading to economic and financial sanctions on Iran, with China being its primary trading partner. Consequently, the US is essentially targeting China.

While kicking Chinese institutions off SWIFT is seen as a catastrophic measure, it may instead hasten the yuan's rise. Should the US enforce such a ban, it could force countries dealing with China to join CIPS, potentially broadening its use beyond China's trade. Additionally, the global financial system might face a severe disruption, further undermining the dollar's dominance.

Given these considerations, the threat of barring China from SWIFT appears unfeasible. The status quo of the US embargoing ships to Iran and Iran controlling the Strait of Hormuz is likely to persist for an extended period. Ultimately, peace will likely return as strategic petroleum reserves and petrochemical stockpiles deplete, resulting in high oil prices leading to peace.