Global Geopolitical Series: Chinese banks likely to face sanction pressure if trade talks fail

All eyes are focused on this week’s much anticipated Trump-Xi meeting, where both Presidents will hold extensive talks on issues related to trade, security, North Korea, Iran, and intelligence and technology cooperation. The market is largely focused on Trade talks, as the latest round of negotiations has taken a turn for the worse, with imposing fresh tariffs on goods from the other.

Risks related to the failure of talks remain very high. If a deal or outline to further negotiations couldn’t be reached, we expect both sides to move to the next round of pressure campaigns, where President Trump would impose tariffs on the next round of Chinese goods worth more than $300 billion. China, on the other hand, creates a logistical nightmare for the United States with regard to rare earth exports. China would also target U.S. companies operating in China.

If the dispute escalates to the next level, we expect the Chinese banks to feel the heat as some state-owned prominent Chinese banks are now vulnerable to fines or sanctions. Three Chinese banks, possibly the state-owned Bank of Communications, China Merchants Bank, and Shanghai Pudong Development Bank are now held in contempt of the U.S. judicial system for refusing to comply with subpoenas in an investigation into violation of North Korean sanctions. The banks were accused of working with a Hong Kong company, which allegedly laundered more than $100 million for North Korea’s sanctioned Foreign Trade Bank. Shanghai Pudong Development Bank faces the most risk of losing access to USD access and SWIFT payment system.

However, all would depend on the outcome of this week’s meeting.