Time for Collective Pushback against China’s Economic Coercion

This commentary is part of CSIS's Global Forecast 2021 essay series.

Coping with the multitude of challenges that China poses will require building coalitions. President-elect Joe Biden knows this. “As we compete with China and hold China’s government accountable for its abuses on trade, technology, human rights and other fronts, our position will be much stronger when we build coalitions of like-minded partners and allies to make common cause with us in defense of our shared interests and values,” Biden said at the end of 2020. As the European Union’s apparent decision to sign an investment treaty with China demonstrates, building a unified bloc to push back against all of China’s objectionable policies is unlikely to succeed. Instead, coalitions of the willing will need to form around shared interests on specific issues.

One pressing issue that is ripe for collective action is China’s economic coercion. To date, Beijing has used the threat and imposition of trade-restrictive measures to punish over a dozen countries for pursuing policies deemed harmful to Chinese interests. The first episode occurred in 2010 when China blocked salmon imports from Norway after the Nobel Committee awarded the Peace Prize to Chinese human-rights activist Liu Xiaobo. That same year, Chinese customs officials obstructed exports of rare earths to Japan in an effort to compel Tokyo to release the captain of a Chinese fishing trawler who was detained after his vessel collided with Japanese coast guard vessels in waters near the disputed Senkaku Islands. In 2012, after engaging in a confrontation with China at Scarborough Shoal in the South China Sea, the Philippines discovered that its tropical fruit exports to China were quarantined due to alleged infestation.

Punitive economic measures were subsequently taken by China against Mongolia for hosting the Dalai Lama, against South Korea for deploying a U.S. missile defense system, against Canada for its arrest of Huawei CFO Meng Wanzhou, against New Zealand for banning Huawei-made equipment from its 5G mobile network, against Sweden for awarding a rights prize to a Swedish dissident under detention in China, against Taiwan for refusing to acknowledge that the island is part of China, against the United Kingdom for supporting pro-democracy protesters in Hong Kong; and against the city of Prague for signing a sister city deal with Taipei.

China’s latest target is Australia, which riled Beijing by barring Huawei and ZTE from its 5G network, accusing China of interfering in Australia’s domestic politics, and, above all, calling for an independent inquiry into the origins of the Covid-19 pandemic. The number of Australian products exported to China that have been subjected to disruption is unprecedented—coal, barley, beef, copper, cotton, sugar, timber, wine, lobsters, sugar, wheat, wool, and beer have been affected.

In most cases, the Chinese government has denied imposing punitive measures. When the flow of Chinese tourists to South Korea slowed and South Korean consumer goods were subjected to boycotts inside China, Chinese officials strongly foreswore any government involvement and instead attributed the happenings to “strong feelings in the general public in China.” On occasion, Beijing has relied on dubious legal and regulatory grounds to justify erecting trade barriers. China alleged, for example, that Australian winemakers were receiving illegal subsidies and selling their products in China at predatory prices.

As Wendy Cutler and James Green cogently argued in a recent article, the use of non-transparent restrictions to punish other countries for their policies is a violation of both the letter and spirit of the rules-based trading system and calls into question the value of concluding free trade agreements with Beijing.

The value of lost exports to China for targeted countries relative to their total trade has been relatively insignificant. Canada’s exports to China fell by $4 billion in 2019, which was a tiny percentage of the country’s $572.2 billion total exports of goods and services that year, for example. But China’s use of trade as a weapon has inflicted substantial harm on individual producers and economic sectors. Revenues of Lotte’s supermarkets in China, which were boycotted by Chinese consumers after the South Korean conglomerate provided land for the deployment of the U.S. missile defense system, plunged 77 percent in 2017. The damage to Australia’s affected industries remains to be seen, but there is potential for significant losses. The total value of goods and services exports to China in 2019 of the 13 Australian products impacted by declared and undeclared Chinese sanctions was $41.8 billion.

In every instance in which Beijing has restricted imports, the goods affected are products that China can easily obtain from other countries. China has refrained from blocking imports that are deemed essential to Chinese economic growth, such as Australian iron ore and natural gas. Not surprisingly, Beijing has also put preservation of social stability ahead of penalizing countries for damaging Chinese interests. Five months after curbing Canadian meat imports in January 2019, China lifted the restrictions due to rising domestic pork prices following a swine fever outbreak.

Chinese bullying has had mixed results. In a few cases, targeted countries have modified their policies after being subjected to economic coercive measures. After seven years of restrictions on Norwegian salmon exports to China combined with curbs on interactions with Norwegian officials, Oslo signed a joint statement with Beijing that contained language likely drafted by China, including that the “Norwegian Government reiterates its commitment to the one-China policy, fully respects China’s sovereignty and territorial integrity, attaches high importance to China’s core interests and major concerns, will not support actions that undermine them, and will do its best to avoid any future damage to the bilateral relations.”

In China’s spat with Japan, Beijing won a tactical victory when Tokyo released the Chinese fishing trawler captain without charges. Subsequently, a World Trade Organization (WTO) panel ruled that China was in contravention of international trade in imposing export restrictions on rare earth elements. After its bout with Chinese punishment, Mongolia pledged that it would not extend invitations to the Dalai Lama in the future and issued a statement that it felt “sorry” that the visit had negatively affected relations between Beijing and Ulaanbaatar. Other countries, including Australia and Canada, have stood firm in the face of Chinese economic pressure.

Evidently, China continues to see value in using economic coercion tactics. Even if the targeted country does not yield to Chinese pressure, its actions may deter other countries from implementing policies that harm Chinese interests. Moreover, the cost to China is negligible—at least so far. In prior and ongoing episodes, targeted countries have at most received rhetorical support from the United States and other like-minded partners, and even that has been feeble. The most significant response so far is the global campaign launched by politicians from the Inter-Parliamentary Alliance on China (IPAC), which represents more than 200 members of parliament from 19 countries, who have urged the world to drink Australian wine to offset the losses from China’s tariffs on Australian wine sellers of up to 212 percent.

The Biden administration should work to forge a counter-coercion coalition composed of countries that have been subjected to Chinese trade coercion or are vulnerable to such coercion in the future. When instances of Chinese economic coercion take place, coalition members can decide whether and how to respond. Such a grouping could help countries resist Chinese coercion and reduce their vulnerabilities to Chinese trade pressure. Even more important, the coalition could seek to impose costs on China with the aim of changing Beijing’s risk-reward calculus and thus deter it from undertaking future economic coercion campaigns. A web of arrangements could be considered for collective action.

First, the coalition could quickly respond to threats or early signs of trade coercion by issuing a joint declaratory statement condemning Chinese behavior. Although declaratory statements have limited value, they demonstrate to victims that they have support from the international community. China would also pay a reputational cost if a significant number of countries are willing to sign on. Except for the ongoing case of Chinese economic coercion against Australia, the United States and other leading countries have been relatively muted in their responses to Chinese trade pressure. A more forceful, unified diplomatic response is an essential part of a strategy aimed at increasing the cost to China of its actions.

Second, members of the coalition should encourage victims of Chinese coercion to challenge China’s measures in the WTO. Other countries can then sign on as third parties. Although the nature of Chinese practices can make WTO challenges difficult, in some instances WTO remedies are possible. WTO rules permit countries to join cases even where their economic interests are not directly targeted if those cases raise questions about the integrity of the global trading system. The WTO ruling against China on rare earths involved a case filed by the United States that was joined by Japan and the European Union.

Canada is seeking trade remedies in the WTO against China for its restrictions on Canadian canola exports. Australia has brought a case against China to the WTO over its 80.5 percent tariff on Australian barley. Canberra could also bring a case against China over its move to blacklist Australian coal. Working through the WTO is not a prompt remedy—its dispute settlement process is currently handicapped due to the United States blocking the appointment of new judges to the Appellate Body, and even when the WTO process is working smoothly, a determination generally takes over one year. Nevertheless, filing a WTO case along with other countries would demonstrate multilateral solidarity in challenging China’s trade abuses, and, alongside other actions, could contribute to dissuading Beijing from launching more economic coercion campaigns. Coalition members can and should also push to reform the WTO so that member states are protected from economic predation.

Third, the counter-coercion coalition could agree to punish China by imposing punitive retaliatory tariffs on Chinese exports. Coalition members could construct a global safeguard action, where all the nations in the group use their domestic legal procedures to impose tariffs on selected Chinese products. They would justify their actions based on the claim of having been injured by the imports. The justification would be no better than Chinese justifications for its actions, but on its face, coalition members would be using a WTO-legitimate process.

Alternatively, coalition members could each identify one product they export to China that Beijing is heavily reliant on and impose a small levy on that product. The extra amount that China would be forced to pay for those products would be calculated to be proportionate to the damages incurred from China’s coercion. Such a retaliatory action was advocated by Australian senator Matt Canavan. He proposed that Australia collect a 1 percent tax on Chinese purchases of iron ore and distribute the proceeds to producers affected by Beijing’s trade bullying. However, coalition members, including the United States, may be reluctant to take actions that would effectively declare their countries outside the WTO dispute settlement system and no longer bound by Annex 2 of the Uruguay agreement, which governs trade disputes.

Fourth, the coalition could explore ways of providing offsetting assistance to compensate countries and companies for lost revenue due to Chinese coercion. Collaborating nations could agree, for example, to purchase a portion of the goods that China has banned. Alternatively, a reserve fund could be established for the purpose of assisting affected companies and municipalities. The fund could be capitalized by member governments and private sector companies who might be vulnerable to being targeted by Chinese coercion. Even if the amount of assistance made available is small relative to a company’s losses, the effort would signal that the United States and like-minded countries are willing to take preemptive actions to defend their shared interests.

In the absence of collective pushback, China will continue to use non-transparent trade restrictions to punish countries that damage Chinese interests, to compel those countries to modify or reverse policies that Beijing considers harmful, and to deter others from being emboldened to similarly challenge China. The Biden administration should join forces with allies and partners to change China’s risk-reward calculus.

Bonnie S. Glaser is a senior adviser for Asia and the director of the China Power Project at the Center for Strategic and International Studies in Washington, D.C.

Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).

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Bonnie S. Glaser