Sanctions against a big Chinese bank may be best way to rein in North Korea

  • Trump's tough military talk did move China to tamp down North Korea, but this wasn't enough.
  • It's time to pair military power and presence with more serious economic sanctions on China.
  • Until China starts feeling real financial pressure, the North Korea threat will continue.

Pyonyang's return to missile-firing activities this week proves more needs to be done to rein in the rogue nation.

President Trump acknowledged that on Tuesday, saying that "all options are on the table" after North Korea fired a ballistic missile that passed over Japan.

He signaled his impatience for continued negotiations with this tweet on Wednesday morning:

But stopping negotiations doesn't mean an imminent conflict. Here's what President Trump needs to do now instead: 1) Increase the U.S. military presence in the region and 2) Issue more serious economic sanctions against China.

Remember it was Ronald Reagan's policy of increasing military presence in Europe in the 1980s without firing a shot that worked in getting the U.S.S.R. to first take the U.S. political will more seriously, and then eventually made Moscow realize it could never match American military spending. China and North Korea need to see more of that same American military resolve.

But the non-military options are harder to find when confronting North Korea directly, because North Korea's economy is so small as it is. For economic sanctions to have a better chance of working, the U.S. and its allies must threaten to level serious sanctions on China.

The Trump team has indeed levied sanctions already, but they've been on bit part players and they don't hit hard enough. And that means it may be time to at least threaten to hit a major Chinese bank and block its access to U.S. business and dollars.

And the Bank of China would be a good first target as it was reportedly cited in a U.N. report in 2016 for being used by North Korea to evade sanctions. That means that sanctioning that bank could serve the triple purpose of proving to the world that the U.S. is serious about protecting its western coast and its allies, aims to punish all who aid North Korea's missile adventurism, and help enforce the economic sanctions already in place against North Korea itself.

There is support for this tactic from a bipartisan set of figures. Many conservatives want to try a shutdown immediately, and former Obama administration Treasury official Anthony Ruggiero, and now a senior fellow at the Foundation for Defense of Democracies said in an email that, "sanctions against the Bank of China are overdue." He added that fines should be tried first before assets are frozen or access to the U.S. financial system is totally denied.

Another former Obama administration official at the CIA, David S. Cohen, is also calling for much more stringent sanctions on Chinese banks and downplaying the ramifications of China's response to them. In the Washington Post earlier this year, Cohen noted the positive results that came from the Obama administration's actions against Chinese banks that were still doing business with sanctioned banks in Tehran.

Cohen believes China would be similarly willing to cut off financial dealings with North Korea to avoid a war. "China is worried about ... military action to destroy North Korea's nuclear and missile programs. Whatever sanctions pain China was willing to endure to avert a military strike by the United States (or Israel) against Iran, its deep-seated fear of a military confrontation on the Korean Peninsula means its pain tolerance for secondary sanctions against North Korea would be even higher."

Still, it's vital for every American to understand the potential downside of that kind of sanction. First off, Beijing could still decide to at least temporarily respond angrily and move to block U.S. banking activities in China, such as they are.

Second, U.S. businesses and jobs that rely on Chinese investment would be effected and maybe even lost. Many economists have made the honest assessment that the worst case negative effects from shutting down a major Chinese bank would be severe and difficult to fully anticipate. That includes a nasty scenario where Russia could use its banks to swoop in to ease the effects of a major sanction like this.

But that's where the Trump administration has to weigh the costs of different general options for proving American resolve. A buildup of U.S. naval, infantry, and air power in the region is serious enough for a while, but a war weary American public is going to demand solid evidence that this president has explored as many non-military options as possible before supporting an actual attack. And even if the public does become more supportive of an actual strike, President Trump really owes that to the U.S. troops and the millions of civilians on both sides who would be put in harm's way.

The good news is that this kind of sanction could work even before it goes into effect, as long as the Trump team makes an effective and credible threat to shut down a major Chinese bank. That means more than just a Trump tweet, but a detailed description of what the U.S. plans to do from someone like Treasury Secretary Steven Mnuchin. Another bit of good news is that unlike the destruction and deaths from air strikes and other attacks, a bank shutdown can be temporary and its effects easier to reverse. And the final bit of good news is that Russia's latest banking woes look like they'll at least significantly curtail much of Moscow's ability to interfere with this kind of move.

That's about where the good news ends. What everyone has to accept is that responding properly to a serious menace like Kim Jong Un is not going to be easy. There will be economic hardships to endure right here in the U.S. and for some people and businesses, they could be severe.

President Trump and the U.S. owes it to our troops, our endangered allies, and all the civilians in the region to pursue the most serious non-lethal options before ordering any kind of attack. Sanctioning a major Chinese bank is one of those options, and it would be appropriate in this situation. This administration must prepare to do so right away.

Commentary by Jake Novak, senior columnist. Follow him on Twitter @jakejakeny.

For more insight from CNBC contributors, follow @CNBCopinion on Twitter.