China’s arrival as an economic superpower may be a recent phenomenon, but the country already appears to have the habit of practicing economic coercion against its neighbors for geopolitical objectives.

Its most recent target is Australia, which committed, in the eyes of Beijing, the unforgivable sin of daring to call for an investigation into the coronavirus outbreak in China. Two months ago, Beijing slapped an 80% “anti-dumping” tariff on Australian barley, a move that could cost Australia 500 million Australian dollars ($350 million) a year.

A month later, the Chinese Ministry of Culture and Tourism issued an official warning against travel to Australia because of “a significant increase in racist acts and violence against Chinese and Asians in Australia.” Since 1.4 million Chinese tourists to Australia contribute about A$12 billion to its economy each year, Beijing wants Canberra to pay a price for biting the hand that feeds it.

In the past decade, China has shown itself eager to use this sort of economic warfare, if not that adept at it. It is going to have to reconsider its blunt tactics if it wants to achieve its aims.

Australia is only the latest victim of Chinese bullying. Japan was early to taste Chinese economic coercion: when China had a diplomatic row with Japan over the Senkaku Islands, which Beijing claims and calls the Diaoyu, in September 2010, it briefly cut off the export of rare earth minerals to Japan as a punishment.

In June 2012, China restricted the import of bananas from the Philippines after Manila challenged Beijing’s seizure of the Scarborough Shoal, which lies within the Philippines’ exclusive economic zone.

And South Korea infuriated China in 2016 when it agreed to host the U.S. Terminal High Altitude Area Defense anti-missile system, or THAAD, to defend against North Korean threats. China believed that Washington was using Pyongyang as a ruse to deploy THAAD’s powerful radar to spy on Chinese military activities and potentially render Chinese missiles vulnerable to interception.

As China held few economic cards against the U.S., it concentrated its fury on South Korea. Beijing quickly cut the number of Chinese tourists visiting South Korea. Lotte group, the South Korean conglomerate which provided the land for THAAD, was singled out for harassment and consumer boycott. Revenues of Lotte’s supermarkets in China plunged 77% in 2017 as a result.

Unfortunately, China has little to show for deploying economic coercion to advance its geopolitical objectives. Japan did not capitulate to Chinese pressure. Instead, it immediately began to invest in new suppliers and seek substitutes.

Manila defied Beijing: it exported fewer bananas to China, but President Benigno Aquino III won a favorable arbitration ruling against its seizure of the Scarborough Shoal. Chinese coercion failed to make South Korea reverse its decision to host THAAD and eventually Beijing had to find a face-saving way to end the standoff with Seoul in 2017.

Beijing’s inability to gain geopolitical advantages with its economic leverage may puzzle its leaders, but is hardly surprising to those familiar with the checkered history of sanctions.

Despite the costs of defiance, few countries targeted with economic sanctions cave in when their national security and honor are at stake. It is impossible to imagine that Japan would cede its claims of sovereignty over the Senkaku Islands because China threatened to cut off the supply of critical materials for its high-tech manufacturing sector.

Ironically, as a target of U.S. economic coercion today, China is behaving exactly as its victims have. Faced with America’s trade and tech wars, China has refused to budge on its foreign policy. If anything, it has escalated confrontation with the U.S. by, for example, imposing a draconian national security law on Hong Kong.

Economic coercion also rarely works because most countries overestimate the leverage they have. No single country possesses the capacity to inflict crippling damage on another country’s economy because all countries have diversified markets and suppliers. While sanctions incur real costs, such as reduced exports and disruption of supply of critical technology, they are seldom fatal.

Even the U.S., which accounts for 24% of global gross domestic product and wields unrivaled financial clout because of the dollar, is unable to induce an economic collapse in Iran despite years of maximum pressure. China, which has a GDP two-thirds the size of the U.S. but no equivalent technological and financial muscle to flex, is far less capable of deploying economic coercion successfully.

Finally, commercial ties can only be weaponized under most circumstances once. Targeted countries will respond by reducing their economic vulnerabilities. After China cut the number of mainland tourists to Taiwan in 2016 to pressure the new Democratic Progressive Party government into accepting the “One China” principle, Taipei reacted not with capitulation but with a program to attract tourists from elsewhere, and it is now much less dependent on mainland tourists.

If Beijing expects Canberra to kowtow, it should think again. China is almost certain to achieve the opposite of its goals: its economic coercion will only succeed in alienating and pushing Australia further into the U.S.-led anti-China coalition.

By Minxin Pei
Nikkei Asia


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