As both Congress and the White House are beginning to consider measures to respond to growing concerns about China’s economic coercion against other countries, a new report downplays those concerns and posits that “Beijing’s behavior provides an opportunity to advance U.S. interests in multiple ways.”

As China has grown economically, the report states, so too has its propensity to engage in acts of economic coercion, defined by one authority as a threat or act by a government to disrupt economic exchange with a target state unless it acquiesces to an articulated demand. The report finds that China’s use of economic coercion is typically triggered by perceived threats to its national or economic security, territorial integrity, or domestic political legitimacy and is usually employed against smaller economies and in sectors where it possesses an asymmetric advantage. Examples include tightening inspections on imports from Japan after a dispute involving contested islands, restricting commodity imports from Korea and forcing the closure of Korean-owned stores after Seoul installed air defense systems from the U.S., and effectively imposing an embargo against Lithuania after it allowed Taiwan to open a government office in its capital.

However, the report adds, “the most salient characteristic of China’s economic coercion is that it simply is not very effective.” Beijing’s use of this tool “has a poor track record of achieving its immediate policy aims,” the report states, “and when it does, if often carries long-term costs for China.”

Moreover, China’s behavior may actually be advancing U.S. interests. “Beijing’s bullying has harmed China’s image around the world, pushing countries closer to the United States,” the report asserts. “It also creates the perception that China is an unreliable economic partner, which in some cases has prompted allies and firms to adjust their supply chains away from China.”

In light of these findings, the report recommends that the U.S. respond to China’s economic coercion by focusing on resilience and relief for targeted countries rather than punishment through retaliation. The latter may be more “immediately satisfying” than the former, the report states, but by exaggerating the threat it could make vulnerable countries more likely to capitulate, and by employing tactics similar to China it “might deprive the United States of the diplomatic moral high ground.”

Instead, the report asserts, preemptive policies that aim to harden vulnerable economies against Chinese economic coercion through diversification away from China and closer economic integration with the U.S., and reactive policies that provide targeted relief to those countries to accelerate market adjustments, are “more likely to mitigate, and over time deter, China’s problematic behavior by decreasing its likelihood of success.” The report states that this strategy would rely on the U.S.’ comparative advantage by “using the power of the market,” an approach also suggested in a recent Congressional Research Service report.

One of the specific steps recommended to implement this strategy is negotiating free trade agreements that offer “meaningful market access to allies and partners.” The Biden administration has made a point of rejecting FTAs, however, choosing instead to negotiate trade-focused initiatives and frameworks that address a wide range of related issues but do not offer lower tariffs. The report also urges the U.S. and its allies to make defending against China’s economic coercion “an explicit objective of supply chain resilience initiatives” and to support the filing of cases against Beijing at the World Trade Organization.

The White House does not appear to have a defined anti-coercion strategy and it is unclear if one is under development. Congress, on the other hand, is starting to signal its interest in this issue. For example, legislation (H.R. 1135) introduced in the House of Representatives in February would authorize the president to take specific actions in response to economic coercion, including increasing duties on imports from aggressor countries and decreasing duties on non-import-sensitive goods imported from target countries. The president would also be empowered to further facilitate trade with target countries by expediting export licensing decisions and regulatory processes and waiving certain policy requirements to facilitate export financing.

For more information on how U.S. trade policy regarding China is evolving, please contact Nicole Bivens Collinson at (202) 730-4956 or via email.

Copyright © 2024 Sandler, Travis & Rosenberg, P.A.; WorldTrade Interactive, Inc. All rights reserved.

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