Countering Chinese Economic Coercion at the G-7 Will Be Difficult

The organization of the seven major industrial countries (G7) formed by Europe and the U.S. will further cooperate in response to China’s economic coercion.

As part of the Hiroshima summit, a G-7 ministerial meeting will take place on April 16 in Japan. During the meeting, the U.S. will propose that all countries jointly take action to oppose and deter economic coercion by China. Whether this will be successful remains to be seen, but it will undermine global economic order.

So-called economic coercion by China refers to trade sanctions or other punitive economic measures China has taken against countries that go against Chinese interests. Since 2010, numerous countries have suffered deeply from these measures. For example, Japan suffered from the dispute with China over the Diaoyu Islands’ sovereignty and China’s ban on rare earth exports. Because the Nobel Peace Prize was awarded to Liu Xiaobo, China banned the import of salmon from Norway. Because South Korea deployed American Terminal High Altitude Area Defense systems, Chinese tourists stopped visiting the country. Because Lithuania changed the name of its Taiwanese representative office, China banned the import of Lithuanian goods. And for various reasons, the Philippines, Mongolia, Australia and Canada have all been economically sanctioned by China.

China’s economy is one of the largest in the world, and any punitive measure it takes on any other country will produce devastative effects. Thus, the U.S. is beginning coordination with Japan and the EU that it hopes will become a major resolution at the G-7 summit in May.

Currently, the EU, England and the U.S. are reviewing similar laws that are fundamentally preventive and deterrent in nature. They hope that clearly presenting such laws before they are passed will dispel China’s notions of using economic coercion.

This February, the U.S. proposed the bipartisan Countering Economic Coercion Act of 2023, which authorizes the president to set up cross-functional working groups to address Chinese economic coercion toward government, industry, organizations and individuals. In the draft, the U.S. proposes not only raising sanctions against China but also offering financial assistance and support to countries that have been economically pressured. In addition, to make up for losses from Chinese sanctions, the U.S. will lower tariffs on imports from targeted countries and increase the amount of imports.

The Biden administration is using this to strengthen the deterrence of economic warfare. It can also be used to influence countries in the Global South. Emerging countries there are easily pressured by China. Paraguay, for example, is considering breaking diplomatic ties with Taiwan and establishing diplomatic relations with China instead because it worries about its beef and soybean markets.

Doing this, however, would involve many problems. First, countries currently rely on their own economic strength to economically coerce other countries to different degrees. The U.S. has the strongest economy in the world. Once Donald Trump took office, he imposed special steel and aluminum tariffs on countries all over the world. Although this was done in the name of national security, it was a form of coercion. Before this, because of pre-war labor compensation issues, Japan placed an embargo on South Korean semiconductor materials — which is also economic coercion. Since everyone is doing this, why is it particularly evil and worthy of global resistance when China does it? Among the G-7 nations are some that have close economic ties with China, like Japan and Germany, who disagree.

Second, according to the Center for Strategic and International Studies, an American think tank, even though economic and trade retaliation by China has put pressure on some countries, the effects of China’s economic intimidation have been subpar. Not only has it been unable to force these countries to change their policies, but sometimes the pressure has had the opposite effect, even pushing those countries closer to the U.S.

The reason China’s economic pressure has been ineffective is largely because Beijing has been unwilling to put up with costly coercive measures. For example, Beijing banned the import of Australian coal but lifted that ban after only a few years. No lower-cost alternative supply could be found, and the high cost of coal was affecting energy supply, so they had no other option but to go back to importing Australian coal. In addition, after some goods are banned, they are often imported through an intermediary. For example, because of the incident concerning Meng Wanzhou, China revoked Canada’s rapeseed oil import permit. The Canadian oil was rerouted to the United Arab Emirates, however, and from there, sold to China. Furthermore, everyone knows Australian lobsters are imported to China from Taiwan.

According to this logic, if the G-7 wants to give China a taste of its own medicine, this will unfortunately be difficult to do successfully. Moreover, this is not something the U.S. can control on its own; it needs the cooperation of other countries. It will be hard to avoid having some countries sneak off and break the cooperation.

At present, the World Trade Organization has regulations concerning economic coercion, although applying for concerted arbitration takes a long time. The U.S. is seeking to cooperate with G-7 countries because multilateral cooperation is highly effective. However, this implies that the global economic order will enter a Cold War-like situation.