Background

U.S. policymakers are expressing increasing concern about China’s utilization of economic coercion and appear to be in the process of formulating potential responses. A recent report from the Congressional Research Service outlines the kinds of measures Beijing is employing, the effects they are having, and what the U.S. and others could do in response.

According to the report, the Chinese government tightly controls access to capital, trade, investment, technology, and research opportunities, which, in turn, allows it to calibrate incentives that can be offered and retracted to create pressure on foreign firms, governments, and other actors to adhere to China’s commercial and political demands. Coercion involves both the offer and withdrawal of access to the Chinese market, the application of commercial pressures to achieve certain outcomes (e.g., the transfer of technology or other terms of trade and investment deals), and the use of other economic levers that China controls, such as the approval of global merger and acquisition deals, to pressure or incentivize certain behavior.

The report states that China has also used trade restrictions and brinkmanship to commercially and politically pressure trading partners; to deter foreign countries, nongovernmental organizations, and companies from actions that the government views as inimical to its economic and political interests; and to take action against those entities deemed to have challenged those interests. This pressure may take the form of (real or threatened) trade restrictions (on either imports or exports), popular boycott campaigns, or restrictions ostensibly related to regulations. More recently, China is expanding its playbook by mirroring U.S. authorities and practices in areas such as export controls, foreign investment review, antitrust, and sanctions.

However, China’s escalation of coercive measures poses risks not only to others but also to itself. The report explains that in the past these measures were “more informal, indirect, or not officially articulated, providing China’s government flexibility in their application and plausible deniability.” More recently, though, China has become more active and direct in its demands, “demonstrating a potential willingness to jeopardize economic ties with major trading partners,” apparently based on the perception that they are sufficiently dependent on China’s market to feel obligated to capitulate. The report posits that this approach “could lead China to overreach or overreact” in ways that could leave it vulnerable if other countries (1) increase their own individual barriers to Chinese firms or (2) coordinate with each other to organize supply chains, trade, investment, technology, and research ties in ways that prioritize or prefer other countries or shift away from or directly exclude China.

In the meantime, the report warns, Chinese government pressure on U.S. companies appears to be affecting open and informed U.S. public discourse about U.S. concerns and policy options with regard to China by discouraging industry executives from speaking out about concerns about China because of fears of PRC reprisal. As a result, China’s tactics will continue to allow it to influence key players and impose favorable terms “if the United States and other countries do not impose consequences, costs, or countermeasures.”

The report concludes by reviewing what such responses might look like. Efforts are already underway, including Section 301 tariffs on imports of Chinese goods, alternatives to development finance tools offered by China, new supply chain initiatives with allies and partners, stronger export controls and foreign investment review authorities, and measures to aid countries that fall victim to Chinese economic coercion.

Going forward, the report states, effective responses will likely require sustained U.S. policy focus, bureaucratic agility, and political resolve. Congress could enact legislation providing enhanced enforcement provisions or even a broad anti-coercion instrument like that being advanced by the European Union. Lawmakers could also consider requiring U.S. firms to disclose when they are subject to Chinese coercion or restricting them from participating in it.

More broadly, some have said the U.S. should employ “a more robust bilateral economic toolkit similar to what the United States has used in the past, including during the Cold War period.” The U.S. could also increase efforts to work with allies and like-minded countries to enforce and shape new global trade rules, initiate new arrangements, and act jointly to impose consequences and counter specific Chinese trade policies, actions, and behaviors of mutual concern.

These and other efforts (including some outlined in another recent ST&R article) were discussed in a recent hearing before the House Rules Committee. Legislation granting the president specific authorities to support trade partners facing economic coercion, including tariff increases and decreases, was introduced in the House and Senate earlier this year.

For more information on U.S. trade policy toward China, including possible responses to its economic coercion, 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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