China's Use of Coercive Economic Measures

As China’s economy and its economic statecraft become more sophisticated, Beijing is sharpening and expanding its coercive economic toolkit. Its growing set of tools looks quite different from the wide array of U.S. tools. Washington relies on formal, published sanctions, trade controls, or investment restrictions. Instead, Beijing prefers approaches that do not legally link a foreign policy dispute to the coercive measures, creating public deniability and greater optionality for escalation and de-escalation. China typically imposes economic costs through informal measures such as selective implementation of domestic regulations, including stepped-up customs inspections or sanitary checks, and uses extralegal measures such as employing state media to encourage popular boycotts and having government officials directly put informal pressure on specific companies. 

The cases also illustrate key aspects of Chinese targeting. All of the cases studied where China acted alone involve China using economic coercion against democratic countries, and Beijing generally targets politically influential constituencies capable of pushing for policy change, regardless of whether or not the targeted constituency has any involvement in the policy to which China objects.

Finally, the report sheds light on the Chinese policy interests that trigger Beijing’s use of economic coercion. When China undertakes multilateral coercive economic measures, such as sanctions, Beijing has helped to reinforce global norms—for example, nonproliferation. Yet, far more commonly, when Beijing unilaterally uses its own coercive economic measures it does so to bolster its territorial claims and national sovereignty or to advance other core interests. China has targeted countries such as the Philippines for their challenges to China’s maritime claims and Norway for its alleged intrusion in Chinese domestic politics for the awarding of a Nobel Peace Prize to dissident Liu Xiaobo. Recently, as China’s market has grown ever more important to global companies, China has also begun targeting individual corporations with coercive measures if they fail to adopt Beijing’s preferred policy positions. For example, in early 2018 U.S. airlines began to experience retaliation for listing Taiwan as a separate country.

Though economic coercion is one of many facets of Chinese economic statecraft, U.S. policymakers must better understand it. Beijing’s use of coercive measures is growing in frequency and evolving in scope. Both China’s tools and the situations in which China is willing to use them are broadening as the country’s confidence increases. In the next decade, China’s relative economic power will expand, giving Beijing additional leverage over a more diverse set of countries and companies. 

Xi has made clear that under his continued leadership, China will take a more assertive posture abroad. Economic coercion will be part of this. Coercion also serves domestic political purposes for Beijing, which has cultivated rising nationalism domestically and which can use coercive economic measures to show domestic political audiences that China is acting to punish countries and companies that fail to conform to Beijing’s wishes.

It is possible that in the midterm Beijing will formalize some of its coercive economic measures, particularly if Beijing adopts a planned Export Control Law, though China is likely to continue relying on informal and extralegal measures for the majority of its economic coercion. Whether or not the measures are formal, however, the United States and other nations will need a formal response and must begin to formulate it immediately. Threatened countries will likely experience a growing sense of urgency to respond to Chinese economic coercion. 

U.S. policymakers need to initiate a response. The Trump administration should study the phenomenon to identify specific vulnerabilities in the United States and in partner nations. Building on these efforts, the administration should increase outreach to allies. Economic coercion is a global issue that cannot be addressed without adequate international information sharing and coordination. U.S. officials abroad can play an essential role by gathering currently unavailable data and encouraging foreign partners to take preemptive measures. The Trump administration should also begin to identify trade policy tools and other tools that can be used to build the resilience of partners to resist Chinese economic coercion.

The U.S. Congress should specifically highlight Chinese economic coercion through hearings and investigations. It should consider strengthening anti-boycott statutes and authorizing funding to compensate targets of Chinese coercive measures, at home and abroad. This approach could act as a deterrent by raising costs for China’s conduct. Capitol Hill should also work to fund innovation in key economic sectors. The more the United States becomes irreplaceable in the supply chains of the future, the harder it will be for China to use coercive measures against Washington. Private-sector actors should understand their exposure to Chinese economic coercion and limit their vulnerabilities through supply chain redundancy and market diversification. Finally, nongovernmental organizations should advance government efforts by supporting research on this topic. For too long Chinese economic coercion has escaped sustained scrutiny. The goal of this report is to begin spurring a global, coordinated response.