How to Manage Economic Coercion: Neutralizing Its Impact through Diversification of Sales Channels and Procurement Sources
A landmark joint declaration, concentrating specifically on the domain of economic security, was issued at the G7 Summit that was convened in May. This was a pioneering move in the history of the summit. The declaration underscored the necessity of bolstering collaborative efforts to anticipate and counteract economic coercion, a topic that has garnered substantial attention.
Economic coercion refers to the attempt to interfere with the legitimate decisions of a foreign government by imposing economic costs (harm) or using threats thereof. It is a means to an end, and its ultimate strategic objectives may include coercing a target nation to extract policy concessions, attempting the international isolation or governmental destabilization of the target country, or demonstrating a strong diplomatic stance to gain political support from its citizens.
Economic coercion is not a novel phenomenon. In the aftermath of World War II, certain Western nations sought to interfere in the domestic affairs of developing countries by threatening to halt economic aid or trade. Such actions were denounced as economic coercion by some of these developing nations. Amidst the Middle East conflicts, some Arab nations imposed an oil embargo on countries supporting Israel. Similarly, the United States has established and employed unilateral measures, specifically under Section 301 of the Trade Act, to thwart nations allegedly engaging in unfair trade practices.
However, the apprehensions of Western nations are directed predominantly toward China’s coercive economic tactics in recent years. Nevertheless, China using these tactics is not a novel occurrence. Andreas Fuchs, a professor at Germany’s University of Göttingen, together with his colleagues, has statistically illustrated that whenever the Dalai Lama—a Tibetan Buddhist leader who opposes the Chinese Communist Party (CCP)—visits a foreign country, its exports to China decline temporarily. This trend has been particularly noticeable since Hu Jintao assumed leadership of the CCP in 2002.
If that is the case, why has concern about China’s economic coercion increased recently?
The first factor is the surge in cases of economic coercion. According to the Australian Strategic Policy Institute (ASPI), there were 91 confirmed cases of Chinese economic coercion between 2010 and 2022, with a marked increase in the latter half of the 2010s (see the following figure). In total, 25 countries and regions were targeted, with trade restrictions and limitations on travel to the targeted countries imposed on Chinese tourists and students being the primary methods of coercion, used in approximately 70% of all cases.
The second factor is China’s expanding influence in the economic, technological, and military spheres. There is a growing perception that China has been employing economic coercion as a unilateral attempt to change the status quo by force. While the motivations behind such coercion are diverse, countries that are perceived by China as infringing upon or denying what China considers its core interests—including issues related to Taiwan, Tibet, the Xinjiang Uygur Autonomous Region, and Hong Kong, as well as territorial and security matters—tend to be particularly targeted.
Out of the 91 reported cases of economic coercion, the majority (28 cases) were linked to the Taiwan issue. In these cases, economic coercion was not only directed at Taiwan but also at countries maintaining diplomatic ties with Taiwan, such as Palau and Eswatini, as well as countries like the Czech Republic and Lithuania, which have sought to strengthen their relationships with Taiwan. Japan has also been targeted over territorial disputes. For instance, in 2010, when the captain of a Chinese fishing vessel was detained by the Japan Coast Guard near the Senkaku Islands, China responded by restricting its export of rare earth minerals to Japan.
Countries that have criticized or imposed sanctions against the CCP, Chinese companies, or Chinese citizens have also experienced economic pressure. These countries include Australia, which called for an independent investigation into the origin of the novel coronavirus; the United States and Sweden, both of which have removed Huawei equipment from their national telecommunications infrastructure; and Canada, which detained the the chief financial officer of Huawei.
The third factor pertains to concerns about the vulnerability of the supply chains for critical goods and the growing reliance on China. The COVID-19 pandemic underscored these concerns, as it led to disruptions in the import of medical supplies from China, thus highlighting the risks of overdependence on China for essential goods. As the strategic rivalry between the U.S. and China escalates and trust between China and Western nations erodes, there is heightened vigilance on both sides regarding the weaponization of economic power through the exploitation of these vulnerabilities and dependencies. China, on its part, has countered by criticizing the U.S. as an economic coercer for tightening export controls on advanced semiconductor manufacturing items with the goal of pressuring China.
The fourth factor pertains to the characteristics of China’s unique methods of economic coercion, including the strategic use of plausible deniability and the involvement of non-state actors, which has been highlighted by Ben Czapnik and his colleagues at the National University of Singapore.
The former characteristic refers to the observation that when China resorts to economic coercion, it tends to offer justifications, such as ensuring the safety of consumers and travelers, rather than acknowledging its actions as a means to achieve its true strategic goals without seeking prior dialogue or negotiation. According to the ASPI, in 24 out of 32 reported cases of import restrictions imposed by China, it targeted agricultural, forestry, and fishery products, as well as food products, and in 11 of these 24 cases, the restrictions were imposed owing to quarantine-related reasons.
The latter characteristic refers to the observation that in China, government spokespersons and state-controlled media broadcast messages that endorse sanctions against specific nations or corporations, thereby inciting patriotic consumers and businesses to initiate boycotts. According to the Swedish National China Center, there were 90 confirmed boycotts in China between 2008 and 2021. Interestingly, about 30% of these cases were characterized by the involvement of the CCP or public institutions.
Western countries have come to recognize China’s unique methods of economic coercion, characterized by a lack of transparency, as a serious challenge to the rules-based international order.
How should Japan address economic coercion by other states?
First, the Japanese government should consider implementing the following measures: collecting and analyzing information on past cases of coercion, providing a single-window service to which Japanese companies facing unfair administrative sanctions or boycotts overseas can report, and developing and distributing response manuals for businesses.
Second, to mitigate the adverse effects that may arise when the sale or procurement of specific goods becomes challenging owing to coercive measures, it is beneficial for companies to conduct risk assessments and reevaluations in peacetime to consider whether there is room to further diversify sales channels and procurement sources internationally.
Third, continuous efforts should be made to uphold the rules-based multilateral trade system under the World Trade Organization (WTO), expand the network of partners in Economic Partnership Agreements (EPAs), and strengthen the supply chain resilience of crucial goods via the Indo-Pacific Economic Framework (IPEF) and Japan’s Economic Security Promotion Act. These initiatives contribute to companies securing alternative sales channels and procurement sources when confronted with coercion.
How should Japan navigate the challenges posed by actual instances of economic coercion?
In the context of China’s embargo on Japanese seafood products following the release of treated and diluted water from the Fukushima Daiichi Nuclear Power Plant, the Japanese government is advocating a reversal of the ban, citing a lack of scientific basis.
Many critics argue that China’s actions constitute economic coercion that leverages disinformation. It has been suggested that their true strategic objectives are a fourfold division: between Japan and the international community, within public opinion in Japan, within public opinion in South Korea, and in the relations between Japan, the U.S., and South Korea. Moreover, some argue that China’s actions are aimed at venting the dissatisfaction accumulated within China owing to its economic downturn.
When confronted with coercion, the foremost priority should be the rescue and relief of the innocent industries and businesses that have incurred economic losses. The Japanese government has already pledged its commitment to this cause, announcing initiatives such as support for the fishery industry in expanding their sales channels. The strategy of neutralizing economic coercion through the diversification of sales channels has proven to be effective in the past, as evidenced by the experience of Australia when it was previously targeted.
Furthermore, the framework of the WTO should be utilized to publicly address the issue and pursue a legal resolution. This is also an effective way of informing countries that are not involved about the existence of such coercive practices and the problems that arise from them.
Last, concrete strategies should be promptly devised for collaboration among like-minded nations in response to economic coercion, as highlighted in the G7 Leaders’ Statement. Establishing a mechanism that facilitates the procurement of goods from targeted nations, which have been displaced owing to economic coercion, by like-minded countries could prove effective in neutralizing the adverse impacts of such coercion. The anticipation is high for the presentation of a tangible action plan at the G7 Trade Ministers’ Meeting, scheduled for October in Sakai, Osaka.
（This is the English translation of an article first published in the “Economic Classroom” section of the Nihon Keizai Shimbun on September 13, 2023. It was also reprinted on the JFIR Website on September 15, 2023.）