Trading for Influence?

This commentary is part of the Strategic Trade series supported by the Atlas Network.

The Covid-19 pandemic has become—unfortunately—a politicized arena as the United States and China compete over narratives and global influence. While both countries have continued to peddle arguments that blame the other party for the virus outbreak, Beijing has also actively employed economic diplomacy to portray itself as a magnanimous great power. As countries scramble to secure necessary medical supplies, the Chinese government has claimed that it has facilitated foreign commercial procurement of testing kits and personal protective equipment for several countries, ranging from Italy to Malaysia. Such “mask diplomacy” and the accompanying public relations blitz has been seen as part of Beijing’s attempts to cultivate a positive international image and distract from accusations focused on how its initial cover-up facilitated the coronavirus spread. Such diplomacy is also an example of China’s use of trade inducements to advance its strategic interests. Beijing has often demanded public accolades in exchange for its medical supplies. Chinese officials apparently pressured the Polish president to make a phone call thanking President Xi Jinping and sought letters of gratitude from the German government and companies.

Conventional arguments emphasize how shared interests in trade and globalization facilitate international cooperation rather than conflict. At the same time, there have been growing concerns that such economic interdependence opens new avenues for strategic manipulation in pursuit of foreign policy interests. While much attention has been focused on economic coercion, inducements have also played an important role in China’s toolkit. For example, Beijing has sought to use trade incentives to influence Taiwanese electoral politics in its favor. In 2005, China removed bans and tariffs on selected fruit imports from Taiwan, specifically those produced by farmers located in southern Taiwan, a stronghold of the pro-independence Democratic Political Party (DPP). Similarly, in 2011, Beijing launched a contract farming program to boost exports of milkfish from Syuejia, an economically battered town, also in southern Taiwan. Studies suggest that these trade inducements did succeed somewhat in (i) shifting political attitudes and voting behavior in targeted localities, although broader political shifts away from the DPP have remained limited; and (ii) shifting DPP rhetoric away from outright championing Taiwanese independence.

More broadly, the ambitious if amorphous Belt and Road Initiative (BRI) centers on infrastructure investments meant to improve interconnectivity, developing transnational transport corridors and expanding trade. This includes the aspirational Land-Sea Express Line, which envisions connections from Greece’s Piraeus port through to Skopje, Belgrade, and Budapest. In terms of regional trade agreements, some have suggested that China’s stepwise approach to negotiations and its willingness to make concessions for politically sensitive sectors in target countries have strengthened Beijing’s bargaining power over time.

Trade inducements are arguably harder to manipulate than investments, which by nature can be reallocated for political purposes and lend themselves to rent extraction by elites. Nevertheless, the expansion of trade-related activities with China has, over time, created domestic constituencies in recipient countries who rely on China’s lucrative consumer market. As a result, economic and political elites increasingly seek to avoid political tensions that could affect access to this market. This has provided leverage for Beijing when salient policy issues come up. Under pressure from China, the European Union recently softened a report criticizing the Chinese government’s use of disinformation during the coronavirus pandemic. This reversal was attributed to China’s importance as a trading partner and a desire to gain further trade concessions from Beijing.

Countries in the Asia-Pacific and those with close economic ties have long been familiar with Beijing’s use of economic inducements. Australia’s close trading relations with China have brought about closer policy alignment with Beijing among some prominent constituencies, muddying public discourse over growing Chinese Communist Party’s (CCP) influence. China accounted for 40 percent of Australia’s exports in June 2019, a record high. Tourism and education combined is now Australia’s third-largest export sector, after iron ore and coal. In 2018, China became the top source of tourists for Australia. Many Australian universities have become dependent on Chinese students for revenue: roughly one-third of international students in the country are from mainland China, with 60 percent at the leading Group of Eight universities. Universities have canceled politically sensitive events, such as a visit by the Dalai Lama or forced lecturers to apologize over apparently offensive actions such as including Chinese-claimed territory in a map of India. A University of Queensland student-activist who has been publicly supportive of Hong Kong’s pro-democracy movement and critical of his university’s links to China is currently facing disciplinary action and potential expulsion. These incidents have raised fears of CCP influence at the expense of academic integrity and freedom of speech.

Other business actors have similarly promoted China’s foreign policy positions. Australian mining billionaire Twiggy Forrest has long been an advocate of friendly ties with Beijing. At a government press conference to announce a deal for 10 million coronavirus test kits from China, Forrest reportedly “blindsided” the Australian health minister by secretly inviting the Chinese consul-general, giving him a platform to highlight China’s “open, transparent and responsible” contributions to global health cooperation. Forrest also encouraged Canberra to postpone calls for any international inquiry into China’s handling of the pandemic.

Of course, inducements also come with latent coercion—an implicit threat of disrupting economic exchange—further ensuring that the recipients of such inducements act in line with the Chinese government’s demands to prevent such losses. Beijing’s coercion has become more explicit, not just toward governments but also to individual firms, with major international companies such as Marriott, Delta Airlines, and Zara modifying their websites to avoid referring to Taiwan and Hong Kong as countries, long one of Beijing’s bugbears. Examples of such coercive approaches increasingly abound. After the Houston Rockets general manager tweeted in support of Hong Kong protestors, the NBA’s hasty apology apparently failed to mollify Chinese authorities, which stopped broadcasting NBA games in China. After the Chinese ambassador to Australia threatened a boycott of key Australian exports over Canberra’s support for an investigation into the Covid-19 outbreak, Beijing announced anti-dumping tariffs on Australian barley and suspended imports from four major Australian abattoirs over alleged food safety issues.

The sometimes coercive subtext of China’s economic statecraft has undermined the allure of its trade inducements, while further impelling other countries’ efforts toward the diversification of markets and supply chains. Beijing’s often heavy-handed approach in seeking quid pro quo political benefits has also created suspicion and pushback. By and large, China’s trade inducements have achieved greater political success among authoritarian-leaning elites. Upon receiving medical shipments from China, the Serbian president kissed the Chinese flag and lauded Beijing for its help. Other countries were more skeptical after discovering substandard products. Trade-expanding activities are more likely to gain political goodwill when seen as reciprocally beneficial.

While China’s use of inducements has met its fair share of setbacks, it has also been able to shape the real and perceived economic interests of target country elites. Despite calls in some quarters for decoupling, China’s continued economic importance suggests that many firms and countries may be more preoccupied with maintaining good relations, providing continued purchase for Beijing to use positive inducements in pursuit of its geopolitical goals. U.S. policymakers should consider the strategic benefits of using inducements over a traditionally stick-heavy approach to economic statecraft. Criticizing other countries for deepening trade or investment ties with China also promotes an unproductive, zero-sum framing of U.S.-China rivalry. In contrast, ramping up efforts at bilateral and multilateral economic engagement would provide more credible or appealing alternatives. This ensures that decisionmakers and the public in other countries remain invested in closer economic—and not just security—partnerships with the United States, as well as in a more open and inclusive global order.

Audrye Wong (Twitter: @audryewong) is a Grand Strategy, Security, and Statecraft Postdoctoral Fellow at the Harvard Kennedy School’s Belfer Center for Science and International Affairs, with affiliations at the Brookings Institution and Harvard’s Fairbank Center.

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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Audrye Wong