Examining China’s Coercive Economic Tactics
Chairman Cole, Ranking Member McGovern, and distinguished Members of the Committee on Rules, thank you for inviting me to participate in today’s hearing. It’s an honor to be here. I commend the Committee for focusing on this urgent, important, and evolving challenge. My comments today are my own and should not be attributed to the Department of Defense, the Center for Strategic and International Studies, or Georgetown University.To get more
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China’s economic coercion has become part and parcel of its foreign policy against many trading partners. Countries that interact with Taiwan, support democracy in Hong Kong, oppose genocide in Xinjiang or offend any other “core interests” of China face discriminatory, non-WTO-conforming sanctions and embargoes. Targets of this weaponization of trade since 2008 range widely. Eighteen Western and Asian countries, including Japan, Lithuania, Norway, and Australia, and over 123 private companies, including Walmart and the National Basketball Association, have been targeted precipitating tens of billions of dollars in economic damage.
From Beijing’s perspective coercion works. After sanctioning South Korea’s Lotte company in 2016 and embargoing imports of German pork in 2020, both countries remained silent when China passed the national security law in Hong Kong suppressing democracy.[1] Brazil did not exclude Huawei from its 5G auction for fear of losing billions in business.[2] In 2018 to preempt Chinese sanctions, The Gap clothing company issued a public apology and removed from sale a t-shirt design with a map of China that did not include Taiwan and Tibet.[3] Japanese fashion clothing retailer Uniqlo remained silent on human rights violations in Xinjiang. After a Chinese ban on Norwegian salmon in 2010, the country’s leaders refused to meet with the Dalai Lama when he visited in 2015. China instituted a five-year ban on Columbia Tristar Pictures after it released “Seven Years in Tibet,” starring Brad Pitt because the movie’s portrayal of government suppression.[4] After Taiwan opened a representative office in Vilnius in 2021, Lithuania saw a 91 percent drop in exports to China.[5] China sanctioned online merchandising and game broadcasts of the NBA Houston Rockets because a team staff member tweeted support for Hong Kong democracy in 2019.[6] China seeks deference by routinely warning countries about what it can do to them. The remarks in New Zealand in 2022 by the Chinese ambassador are typical: “An economic relationship in which China buys nearly a third of the country’s exports shouldn’t be taken for granted.”[7]
Dealing with China’s weaponization of trade is a critical pre-requisite for the success of the Biden administration’s strategic competition with China. The willingness of countries to sign up to supply chain coalitions or to support Taiwan’s defense depends on how fearful they are of Chinese economic retaliation because no country can truly decouple from one of the largest economies in the world. What is needed is a peer competition strategy that can stop this behavior. The United States and like-minded partners need to consider a new “collective resilience” strategy to deter China’s economic coercion.
How Collective Resilience Works
Most of the targets of Chinese economic coercion are asymmetrically trade dependent on it. But this should not obscure the reality that many of these countries also export items to China upon which the Chinese market is highly dependent, and in some cases almost 100% dependent. For example, China is over 90 percent dependent on the import of silver powder from Japan, which it uses to make solar panels. The next three suppliers of silver powder to China are the US and South Korea making up nearly 100 percent of their dependence on these countries. China is over 80 percent dependent on the import of Kentucky Bluegrass seed from the United States which it uses for its soccer pitches. The next largest exporter is Denmark again comprising almost 100 percent of its grass seed imports. It is nearly 100 percent dependent on whiskey from the UK and Japan, and fine brandies from France.
In some cases, China could make up for a loss of these imports with domestic production but not without significant cost. Indeed, the eighteen countries that are previous and current targets of Chinese economic coercion export over $46 billion worth of goods to China upon which the country is more than 70 percent dependent as a proportion of its total imports of those goods, and over $12 billion in goods upon which China is more than 90 percent dependent (see Appendix 1).
These states can band together and practice economic deterrence by promising collective retaliation on these high-dependence goods should China act against any one member of the collective. Forcing China to find a new supplier or pay a higher price for one item is, of course, not enough to change Beijing’s behavior, thus operating alone against China would be foolhardy. However, joining together in an Article 5-type of collective economic defense framework could threaten enough inconvenience for Beijing that it might deter future predatory behavior. Collective resilience might sound too mercantilist for the ears of some liberals and globalists, but it’s a necessary competitive strategy to protect the liberal international order.
