Two Events Discuss the Issue of Trade Coercion

Two events today discussed the problem of trade coercion. The first, entitled "Responding to Trade Coercion: A Growing Threat to the Global Trading System," was put on by the Asia Society Policy Institute (ASPI) and the Perth USAsia Centre, and talked about responses to trade coercion generally, on the basis of a report they issued recently. The second focused on Chinese coercion specifically, and was a hearing by the the Congressional-Executive Commission on China entitled "How China Uses Economic Coercion to Silence Critics and Achieve its Political Aims Globally."

Wendy Cutler introduced the trade coercion report from the Asia Society Policy Institute (ASPI) and the Perth USAsia Centre, after which there was a panel discussion of these issues. Cutler began by noting that policymakers all around the world are grappling with the issue of how to respond to trade coercive measures. She pointed out that "[t]his isn't just a trade problem," and said that "to solve this, you can't just rely on trade ministries, it's got to be kind of an all of government approach involving foreign ministries, involving the treasury and finance ministries, in some cases, the agriculture or small business agencies." While noting that "there's no silver bullet here," she described the 10 policy recommendations they made in the report, which they grouped into "three buckets."

The first bucket has to do with "national responses, what government could do by themselves." Here, she first said that "governments can do more to be prepared for possible trade coercive measure activity," with "one of the most important steps [being] for countries to identify their vulnerability, their overdependence on certain export markets, but also on imports, as well." Second, governments "can undertake a broader effort to diversify their trading partners, both with respect to imports, but also with respect to exports, and this could be done through formal trade agreements, and we've seen many countries joining more and more agreements. Or it could be done through export promotion activities as well." Third, she said "governments can do a better job of information gathering, working with stakeholders in their countries who often are the first to learn and to kind of expect that something wrong is going on, their imports are no longer welcome in certain countries." And finally, "what governments can do is to help ease the burden on those companies and workers that are affected by trade coercive measures, and they can do this by offering financial assistance or other types of assistance to help those companies and workers weather through the storm."

The second bucket "has to do with collective responses and working with like minded countries and here again, information sharing is critical." Here Cutler noted "this can be done through ad hoc discussions, but also through formal mechanisms as well." In addition, "coordination of diplomatic responses can be very important." She also said that "international organizations and groupings can be used more effectively either to raise awareness about the problem, and ideally, over time, develop some norms disciplining this practice," with the "OECD in particular" being "well positioned to develop an inventory of coercive measures, cataloging the dates they were applied, to sectors they have been applied, what the impact is, what the responses are."

The final bucket related to the World Trade Organization. Cutler said that while the WTO has "its own share of difficulties right now," there are "two important ways where the WTO can step up its game on trade coercive practices." The first has to do with "peer pressure," in which the WTO Members "through the General Council meetings, through committee meetings, and through trade policy reviews can really shine a spotlight on trade coercive practices." In fact, she noted, in a recent trade policy review, "trade coercion was raised by a number of countries as an issue of concern." And finally under the WTO, the report recognized that "the dispute settlement mechanism, although also experiencing its own strains, can also play a useful role here, particularly for small and medium sized countries that don't have a lot of other options to pursue these measures," as "other countries can join in the proceedings as third parties, and also help countries develop their legal briefs and their legal arguments."

Turning to the Congressional-Executive Commission on China, the witnesses were Bonnie Glaser of the German Marshall Fund of the United States; Zack Cooper of the American Enterprise Institute; Jenny Wang of the Human Rights Foundation; and Ho-Fung Hung of Johns Hopkins University. We provide below excerpts from the remarks by each of them.

Glaser:

As the world's top trading nation, the second largest market, and one of the largest providers of development finance, the PRC has the potential to wield significant influence by using both economic sticks and carrots. In the past decade, there have been dozens of instances of PRC economic coercion, which include threats and the imposition of economic costs by a state on a target, with the objective of extracting a policy concession. China's employment of economic coercion and positive economic inducements have had only limited success in compelling targets to change their behaviors. But Beijing has successfully deterred countries and companies from undertaking actions harmful to Chinese interests, including refraining from criticizing PRC policies. There are known instances where Chinese officials have threatened economic consequences against countries that refuse to side with China in votes at the UN Human Rights Council. Since 2010, the PRC has used economic coercion more and more frequently. And in virtually every case, the targets have been companies and industries in democratic states based on an apparent calculation that pressuring influential business constituencies and democracies will mobilize them to lobby their governments to change policies detrimental to China. Unlike traditional economic sanctions, Beijing's economic coercion usually relies on informal measures that provide plausible deniability and enable China to ratchet pressure up or down as needed. Chinese economic coercion tactics include import and export trade restrictions, tourism curbs, popular boycotts, and other measures. Over the years Beijing has become increasingly bold in the use of such tactics. In two recent cases, the PRC has banned the import of almost a dozen products from Australia and blocked all imports from Lithuania in violation of WTO rules. Despite limited success and occasional blowbacks, Beijing continues to view economic coercion as a valuable tool in its economic statecraft toolkit. This is likely because it judges that the cost to China is negligible.

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The United States should undertake unilateral steps, as well as with like minded partners, to counter and deter potential Chinese economic coercion, as well as prepare measures to limit potential damage to companies and industries. First, the most effective defense against trade coercion is to diversify trade relationships. The U.S. should identify sectors which are overly dependent on Chinese markets on both export and import sides and therefore vulnerable to coercive trade practices. National and local government should actively promote trade diversification. Second, the United States should help potential targets of economic coercion to develop tools to identify cases of trade coercion and respond quickly. Trade associations and other stakeholders should be encouraged to work closely with US government agencies. Mechanisms should be created for sharing information and best practices. Third, American companies should have plans in place to respond to potential Chinese coercion. They should be encouraged to report all instances of coercion to appropriate US government entities. Congress should explore how to appropriate funds for a vehicle to compensate companies affected by such coercion. Fourth, Congress should examine whether companies should be required to report or disclose when they are subject to pressure or benefits from Chinese measures, including subsidies. Also worth considering is requiring disclosure of significant import or export dependence on China in sectors closely linked to national security. Fifth, encourage private sector trade associations to develop a voluntary code of conduct regarding China. Such a code would include commitments by American companies to refrain from self censorship and other activities that are contrary to US values and interests. The US should consider developing incentives that could be provided to companies that sign on to the code of conduct. Sixth and finally, create a voluntary counter coalition of like minded countries willing to push back against economic coercion. Collective steps could include encouraging targeted countries to pursue WTO dispute settlement cases against instances of economic coercion where WTO remedies are possible, taking retaliatory trade, investment or other policy measures against China, and creating a counter coercion reserve fund to compensate companies for economic losses.

Cooper:

I argue that China's economic coercion against Norway, Mongolia, Australia and the European Union and United States highlights three concerning trends. Specifically, China's economic coercion has become more frequent, more targeted and more explicit.

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... we should aim to better protect ourselves through diversification. Dependence on China allows Beijing to accumulate influence over time and then to deploy that leverage coercively. There is no way to avoid these pressures entirely. But countries and companies can manage these risks through prudent diversification. At the same time, since our economies will no doubt remain interdependent, at least to some degree, we should seek to leverage our own economic power in certain strategic areas. Selective decoupling will no doubt continue, but it's also in our interest that China remain dependent on the United States and our allies and partners in certain areas. This should be seen as a counterpart to selective decoupling and should be implemented strategically in concert with key allies. Ultimately, the United States will have to work with like minded countries to penalize China when it engages in economic coercion.

Wang:

When companies deliberately choose to censor or apologize to appease the Chinese government, they are offering legitimacy to the authoritarian regime and signaling their willingness to disregard not only the human rights of others, but of their own too, as the cost of doing business in China.

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Based on my observations, as described in my written testimony, companies are now choosing from three methods to approach China's economic coercion. One, they embrace it. Two, they capitulate to it. Or three, they condemn it. We must be demanding better of these businesses that employ supply, entertain, and house our people.

Hung:

... there are several things that the US government could do to protect the interests and integrity of US corporations and investors in Hong Kong. First, the US government could regulate tech companies and ensure that they will not become the accomplices of the crackdown on Hong Kong. Second, the US government could devote resources to develop technology and tools that residents in Hong Kong and elsewhere in China could use to bypass internet censorship and suppression. The relevant Hong Kong sections in the US Innovation and Competition Act of 2021 is a logical first step and it needs to become law soon. Third, US government could issue warnings or restrictions on investment in risky financial products issued by dubious Chinese entities and sold in Hong Kong market. ... Fourth and last, foreign journalists in Hong Kong is the last line of defense for fair, free and level playing field for foreign companies in Hong Kong. The US government needs to use whatever diplomatic tools available to ensure the free operation of foreign journalists in Hong Kong.