Protecting U.S. Allies and Partners from Chinese Economic Coercion

Even as China’s economy faces massive domestic problems, from sluggish consumer demand to industrial overcapacity, its leadership, headed by the increasingly assertive and nationalistic Xi Jinping, has continued a strategy of applying intense economic coercion to countries it feels have disregarded China’s major interests.

As the Australian Strategic Policy Institute (ASPI) and others have noted, Beijing usually applies economic coercion—while consistently denying it is doing so—when it feels its core interests in international relations are threatened. Those core interests can sometimes be blurry, but tend to encompass

• isolating Taiwan from the world;
• ensuring that China is not deprived of what it needs to continue long-term economic growth;
• preventing other states from threatening the power of the Chinese Communist Party (CCP), for example, through criticism of its human rights record and authoritarianism;
• preventing threats to China’s security, as in the case of states, particularly in Asia, signing new defense arrangements with the United States or agreeing to play larger roles in patrolling the South China Sea; and
• delivering a message to the world that China acts peacefully in international affairs.

Though the Donald Trump and Joe Biden administrations have taken some steps to bolster responses to Chinese economic coercion and assist smaller countries facing Beijing, they still have no clear strategy or combined political will in place. To be sure, Washington and its key Asian and European partners do have plenty of tools to confront Chinese economic coercion and help defend states subjected to it, but they have often struggled to work together well and played a relatively strong hand weakly. As a result, important states in Europe and Asia (including Australia) are often left to their own devices to save their economies from Chinese coercion. While some have developed effective counterresponses on their own, others give in to some of Beijing’s demands. In so doing, they show China that coercion works and make it more likely that the Xi administration will utilize more economic coercion in the future.

China Ramps Up Economic Coercion

Beijing’s efforts to use economic coercion against countries (and sometimes multinational companies) that it believes threaten its core interests are not new. China has resorted to these tactics for at least ten years. However, as China has gotten more powerful on the world stage, it has increasingly used economic coercion. As the Center for Strategic and International Studies (CSIS) notes, Beijing often tries to target specific industries in countries that it believes are vulnerable to pressure without imposing broad coercion against entire economies. In recent years, however, Beijing has begun to expand some of its coercive efforts.

Over time, China has evolved from bullying small states with little ability to defend themselves to taking on more powerful states like Australia and South Korea. What’s more, China’s coercive efforts are not usually done through formal avenues or clearly announced, unlike sanctions, tariffs, and other such measures by countries like the United States or European Union (EU) member states. The informality of China’s pressure can give Beijing the opportunity to alter, increase, or otherwise shift its coercion amid the pressure campaign, sometimes masking how it is doing so.

To take just a few examples, in 2010 China slapped clear but unofficial trade sanctions on Norway after the Nobel Peace Prize committee awarded that year’s prize to leading Chinese dissident Liu Xiaobo. After a long Chinese ban on Norwegian salmon, and absent much support from the rest of Europe or the United States, Norway made substantial concessions when it patched up relations with China.

In 2016 and 2017, China was at it again—this time using coercion against a major regional power. After North Korea launched ballistic missiles and conducted nuclear weapons tests, South Korea accepted the U.S.-made Terminal High Altitude Area Defense (THAAD) antiballistic missile system, which placed a major U.S. weapons system close to China. Beijing then retaliated. It forced the major South Korean department store chain Lotte, which had provided some land for THAAD, to sell its stores in China for a fraction of its investment. While South Korea did not ultimately abandon THAAD, it made several major concessions to China without a clear strategy against coercion from its top trading partner. To assuage China, South Korea clarified that the THAAD system did not harm China’s interests and was not directed at any third country. South Korea’s agreement with China followed then-President Donald Trump’s stated desire for South Korea to pay for the THAAD system itself, suggesting Seoul did not feel that it could sustain its economic confrontation without Washington’s support.

Even more intense was Beijing’s effort to coerce Lithuania, a tiny country with few of the trade options of an economic giant like South Korea or even wealthy and developed Norway. After Lithuania allowed the Taiwanese representative office in Vilnius to name itself Taiwan rather than Chinese Taipei in 2021, Beijing stranded shipments of Lithuanian goods to China and then publicly pressured global multinationals not to do business with Lithuania. Lithuanian exports to China declined by 80 percent that year. In this case, the United States and some of its partners did take modest steps to help Lithuania: the Export-Import Bank gave the tiny Baltic democracy $600 million in export credit, and the European Union launched a trade dispute on Lithuania’s behalf at the World Trade Organization (though it ultimately suspended the dispute). Lithuania’s experience with economic coercion prompted the European Union to create an anti-coercion instrument to safeguard member states, which allowed the EU to take a range of countermeasures such as imposing tariffs and restricting trade in services, foreign direct investment, and public procurement. Additionally, Lithuania began to find other markets for its goods, reducing its dependence on China—an effective countermeasure, though not one available to many countries whose trade is more intertwined with Beijing.

The Lithuania incident, as well as intense Chinese economic coercion of Australia—a major U.S. ally in the Asia-Pacific—at roughly the same time seemed to impress on Washington and some European and Asian capitals that they needed to prepare a coordinated response to Chinese economic coercion for the next time it occurred. With the Lithuania situation, there was real coordination, albeit primarily limited to joint statements, between Europe and the United States. For instance, leaders like Secretary of State Antony Blinken and German Foreign Minister Annalena Baerbock denounced China’s bullying of Lithuania. 

Yet beyond those joint statements, the United States did not join forces with European partners in ways that would truly impose pain on China and involve more than just talking. The United States’ support for Lithuania against Chinese coercion with the creation of an after-the-fact office in the State Department was separate from the EU’s complaint to the World Trade Organization (WTO). Washington and Brussels did nothing to create a collaborative preemptive measure to prevent future Chinese coercion. 

Trump and Biden’s Responses

During the first Trump administration, the United States and the EU began coordination on initial investment screenings, as well as export controls on some items critical to national security (which Biden kept). The Trump administration made some progress working with partners to rebut Chinese economic coercion, but fell short of the desired coordinated response: many European countries found the Trump administration’s positions on China too confrontational, often making cooperation difficult. Further, the German Marshall Fund published a policy paper in 2022 which pointed to Trump’s perceived economic rivalry with the EU as an additional barrier to partnership in combating Chinese economic coercion.

Under Biden, the United States and the EU held the first high-level meeting on Indo-Pacific cooperation in 2021. The goal of the talks was to coordinate regional initiatives, not necessarily to prevent Chinese economic coercion in the region. The two instances above highlighted an approach during the Biden administration that fell short of preempting Chinese coercion, economic and otherwise.

The Australian Example

When China used a similar strategy against Australia, ending imports of products critical to the Australian economy after Canberra called for an independent inquiry into the origins of the COVID-19 virus, among other measures disliked by China, Beijing further forced leading democracies to consider how to best respond to this coercion. While the United States did not offer more than rhetorical support to Australia, Asian partners such as India, Japan, South Korea, and Taiwan all significantly increased their Australian imports.

Canberra, learning from prior examples of Chinese economic coercion, deployed a series of countermeasures beyond finding new markets for its major exports. It actively helped impacted industries find other markets for their goods and reassured the Australian business sector that the government would take every possible step to reduce its suffering, keeping Australian big business aligned with fighting coercion. Further, Australia used the WTO process and speeches by top government officials to publicize Chinese economic coercion and demonstrate its costs to China. Meanwhile, because China continued to import massive amounts of Australian iron ore and other key materials, Canberra showed that Beijing cannot always follow through on its threats.

Responding to the incident, ASPI published a report that cited the U.S. Department of Defense’s deterrence framework. Additionally, it highlighted preemptive measures that Australia and its allies should take against Chinese economic coercion, which include greater information-sharing among leading democracies, an international task force to prevent coercion, and WTO reform. The United States should incorporate some of ASPI’s findings in any of its proposed legislation on Chinese coercion.

While there was an increase in economic cooperation between the United States and Europe during instances of Chinese coercion during the Trump and Biden administrations, there has been little to no effort to create joint, formal, and lasting mechanisms that could mitigate Chinese coercion.

Congress Takes Notice

In 2023, legislation was introduced in both houses of Congress to combat Chinese coercion. Representative Ami Bera (D-CA) introduced H.R. 5580, which has a clause to establish an interagency task force to lessen the effectiveness of Chinese coercion. In the Senate, Senators Todd Young (R-IN) and Chris Coons (D-DE) introduced S. 295. Section 6 of the bill explicitly calls for coordination with allies to have a unified response to Chinese coercion, through condemnation, increased opposition, and broadened support for the country facing the coercive measures. Neither proposal passed, but the bipartisan support suggests that Congress could consider such legislation in the next session.

The Trump administration, the Biden administration, and Congress have created offices, convened meetings, proposed legislation, and made statements on the need to punish China for its coercive actions. Yet no U.S. body has yet taken any measure—with or without U.S. allies—that would impose direct costs on China for its behavior, though this type of action appears to be called for by U.S. policy. (One could argue that the May 14, 2024, decision by U.S. Trade Representative Katherine Tai to increase tariffs on $18 billion of Chinese goods was a response to Chinese coercion, but that action was a response to trade practices, rather than to coercive actions.) Throughout the Biden administration, there have been statements from Secretary of State Antony Blinken, Commerce Secretary Gina Raimondo, and President Biden vowing to increase multilateral cooperation against China’s propensity for coercion. The messaging is overt, but follow through has been lacking.

There is, as noted above, broad bipartisan consensus for combating Chinese coercion. When President Trump reenters office, there likely will be draft legislation on the table similar to the House and Senate bills from last Congress. This time, the president should advance the bill with fulsome rhetorical support and ensure that it does two things: include sections that enumerate the cooperative responsibilities of U.S. partners and allies in battling Chinese economic coercion, and legislate U.S. deterrence capabilities if China takes coercive actions. With such legislation in place, China would have to think more seriously before it acts and weigh the possibility of a collective response from leading democracies when considering any coercive action.

Solidifying Future Strategies

The emerging cohesive strategy to counter Chinese economic coercion should include several components. First, leaders of major democracies should publicly highlight China’s economic coercion. This will counter China’s typical response, which is to deny its actions or claim that it itself has been victimized—by unfair criticisms of China, coercion by the United States (such as selling arms to Asian partners), or other actions. They also should publicly warn that, from this point forward, such economic coercion will meet a forceful response that imposes countermeasures against China with substantial costs to Beijing.

To provide credibility to those statements, the United States, Australia, Canada, European Union, Japan, and South Korea should make a formal agreement that if any of them—or their allies and partners—are threatened by Chinese economic coercion, other members of the group will provide assistance. Such assistance could come in the form of opening new markets for exporters China has targeted, direct economic aid, export credits, collaboration in taking China's actions to the WTO, or other methods.

They also should act to diversify their own markets for key exports whenever possible and provide state incentives for firms to reduce their dependence on research and manufacturing in China. As Australia showed, even in a country that had previously been highly oriented toward the China market, it is possible to face down coercion by diversifying export markets. When such actions are taken before China attempts to use economic coercion against a country, they will be easier to put into place. Canberra had to make its choices amid a Beijing-created business crisis. Preparation now can avoid that predicament later.

Such deterrence requires setting other clear boundaries for China as well. Deterrence can potentially stop China before it acts, avoiding the need for the United States and its partners to mount an aggressive response. The next Congress should work with the Trump administration to prioritize legislation that contains at least the most important provisions of S. 295 and HR 5580, both of which were called the Countering China Economic Coercion Act.

Most importantly, legislation should give the president, with a degree of congressional oversight, the authority to determine when Chinese economic coercion (or economic coercion from any other actor) is occurring and quickly reduce barriers to imports from countries targeted by Beijing. In addition, the legislation should give the president, with congressional oversight, the power to combat such coercion by providing some level of emergency aid to affected U.S. sectors and by increasing import barriers to exports from China or any other country engaging in such coercion. To further diversify export markets, both this legislation and a range of other congressional activity should build on the Biden administration’s efforts to boost U.S. supply chains in industries critical to national security so that they are not reliant on China. President Trump has often spoken of using tariffs to deal with economic challenges from China. In his second term, assisting other countries to resist Chinese economic coercion should become a key part of the United States’ efforts against Chinese misconduct in world affairs.