December 20, 2021

A Strategic Response to China’s Economic Coercion

A small nation in the Baltic with a GDP of $56 billion, Lithuania has provoked the ire of the People’s Republic of China (PRC) recently by allowing Taiwan to open a de facto embassy in the country. This, in addition to asking its officials to abandon Chinese-made cell phones over censorship allegations and its departure from a PRC-led regional forum, has touched on Beijing’s geopolitical redlines. Beijing has responded with punitive economic measures. The PRC has downgraded its ties with Lithuania, blocked Lithuanian exports (though recently they were unblocked), and threatened retaliation for multinational companies that did not sever ties with the Baltic country. Is it puzzling that Beijing’s economic coercion on Vilnius seems needlessly aggressive and alienating? Well, it shouldn’t be.

As we demonstrate in a new report released by the Center for a New American Security (CNAS), the PRC has been ramping up the use of coercive economic measures in the last few years, as coercive economic statecraft has become a more crucial component of its general foreign policy. It has an expansive toolkit of coercive tools, which cuts across economic and political domains and often includes both official and more off-book measures. Off-book coercive economic actions include targeted actions that press on economic interests of specific entities and typically fall outside the realm of official policies, such as boycotts encouraged through state propaganda.

The United States must find a way to leverage its alliances so that the combined economic heft of nations pushing back on China’s economic coercion is persuasive to Beijing.

To date, the United States and its allies have struggled to respond quickly or effectively to the PRC’s tactics, though recently Western governments have shown more political willingness to call out the PRC’s coercive behavior. There are more steps that the United States must take to sharpen its coercive economic statecraft on the PRC and come to the aid of partner nations. This requires a rethinking of U.S. coercive economic statecraft.

Using an innovative set of scenario exercises, based on wargaming best practices, the CNAS research team found that the PRC is the most willing to deploy the widest range of economic tools in response to a geopolitical conflict. The United States may be hampered in its response, due to divergent economic interests with its closest allies and differing views on the strategic threat to liberal democracies that is posed by China. At the same time, the United States must find a way to leverage its alliances so that the combined economic heft of nations pushing back on China’s economic coercion is persuasive to Beijing.

Read the full article from The Diplomat.

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