By Eric Vandenbroeck and co-workers

It Took Just Seven Words But NBA-China's Viewership Is Approaching Pre-Ban Levels.

It took just seven words for the National Basketball Association to get canceled by Beijing. As pro-democracy protesters swarmed the streets of Hong Kong in October 2019, Daryl Morey, then the general manager of the Houston Rockets, one of the NBA’s 30 teams, posted a simple message to his Twitter account: “Fight for freedom, stand with Hong Kong.” Chinese broadcasters and streamers quickly announced that they would no longer show his team’s games. The league, which has more viewers in China than in the United States, immediately tried to distance itself from Morey’s tweet, writing that the general manager didn’t speak for the NBA and issuing a statement that implicitly rebuked him. That response fostered a backlash among fans outside China and did nothing to please Beijing. A bipartisan collection of U.S. senators blasted the league for not standing by Morey’s freedom of expression while all 11 of the NBA’s Chinese sponsors and partners suspended their cooperation. With a couple of exceptions, China’s broadcasters stopped airing NBA games until March 2022. The league’s commissioner, Adam Silver, estimated that the rupture cost his organization hundreds of millions.

At first glance, the row between China and the NBA may seem like small potatoes: a tiny example of how the U.S.-Chinese relationship is now more defined by contestation than by close economic partnership. But Beijing’s behavior toward the NBA is emblematic of a much more significant and worrying pattern that the Biden administration’s China strategy does not wholly address. Over the last dozen years, Beijing has slapped discriminatory sanctions on trading partners interacting with Taiwan or supporting democracy in Hong Kong. It has imposed embargoes on and fueled boycotts against countries and companies that speak out against genocide in Xinjiang or repression in Tibet. Indeed, the Chinese Communist Party (CCP) has gone after almost any entity that has crossed China in any way. And this strategy has worked. Because the Chinese economy is so integral to global markets, China’s coercive behavior has caused tens of billions of dollars in damage. The mere threat of Chinese cutoffs is now prompting states and businesses to stay quiet about Beijing’s abuses. 

This silence is both deafening and dangerous. The CCP is carrying out a genocide of China’s Uyghur minority in Xinjiang, engaging in a wide variety of other human rights abuses, and menacing nearby countries—but states are too afraid to respond. Left unchecked, this paralysis could hollow out the postwar liberal order. Should they fear significant penalties? Few governments, for instance, will come to Taiwan’s defense if China attacks it. They will not help New Delhi if China attempts to take more Indian land in the Himalayas. They will hesitate to join the White House’s supply chain initiatives.

Concerned countries could appeal to the World Trade Organization, the usual arbiter of international economic disputes, to try to free them from the specter of Chinese sanctions. But the WTO is unlikely to be of any help. It can investigate an 80.5 percent Chinese tariff on Australian barley as discriminatory. Still, if China stops importing bananas from the Philippines or stops sending tour groups to Korea by citing the “will of the Chinese people,” there is little the organization can do in response. 

The Biden administration is aware that Chinese economic predation is a significant problem. It has responded by advocating resilient supply chains among like-minded partners in everything from personal protective equipment to memory chips, allowing these states to stop relying so much on Chinese-made goods. The administration has also imposed export controls on the transfer of advanced computing chips and chip-making equipment to China. It may soon extend these controls to quantum information science, biotechnology, artificial intelligence, and advanced algorithms.

But these efforts are, at best, a partial solution. Countries may be able to wean themselves from some Chinese goods in the supply chain, but Biden cannot reasonably expect most of them to decouple from one of the largest economies in the world. Export controls by the United States on transferring cutting-edge technologies to China won’t work unless other countries possessing such technology—including Denmark, Japan, the Netherlands, South Korea, and the United Kingdom—join in. And these states may choose not to participate in Washington’s supply-chain and technological coalitions because they fear Chinese economic retaliation.

To successfully compete with China,, the United States needs to do more than insulate states from Chinese coercion. It needs to stop the pressure from happening in the first place. To do so, the United States will need to band together with its partners and draw up a new strategy, one of collective resilience. China assumes it can boss other countries around because of its size and central role in the global economy. But China still imports enormous numbers of goods: for hundreds of products, the country’s economy is more than 70 percent dependent on imports from states that Beijing has coerced. Together, these goods are worth more than $31.2 billion to the Chinese economy. For nearly $9.1 billion worth of items, China is more than 90 percent dependent on suppliers in states it has targeted. Washington should organize these countries into a club that threatens to cut off China’s access to vital goods whenever Beijing acts against any single member. States will finally be able to deter China’s predatory behavior through such an entity. 

Dealing with China’s weaponization of trade will be necessary if the Biden administration wants to compete successfully with Beijing. And although a U.S.-led collective resilience bloc may strike proponents of globalization as mercantilists, they should understand that it is essential to their project. China will continue to abuse its economic position and distort markets until it is forced to stop. Collective deterrence may be the best way to keep the global economy free and open.

 

Wild Abandon

China’s predatory actions are carefully designed to hit countries where it hurts most. Consider what Beijing did to Norway in 2010. After a Norwegian committee awarded the Nobel Peace Prize to a Chinese dissident, Beijing heavily restricted imports of Norwegian salmon. Over the next year, the product went from cornering almost 94 percent of China’s salmon market to just 37 percent, a collapse that deprived the Norwegian economy of $60 million in one year. After South Korea agreed to host a U.S. missile system in 2016, Beijing forced stores in China owned by the enormous Seoul-based Lotte Group to shut down, causing over $750 million in economic damage. China similarly banned and then heavily restricted the sale of group tours to South Korea, costing the country an estimated $15.6 billion. 

Beijing also frequently targets individual businesses if they or their employees deviate from China’s official positions. In 2012, Chinese protesters—encouraged, according to a Los Angeles Times report, by Beijing—shut down Toyota’s manufacturing plants in China in response to tensions over the Senkaku Islands, which are administered by Tokyo but which Beijing claims (and refers to as the Diaoyu Islands). In 2018, Beijing took the website of Marriott Hotels offline for a week after the company sent an email to its rewards members. It listed Hong Kong, Macao, Taiwan, and Tibet as separate countries. The company apologized and issued a public statement against separatist movements in China. The same year, Beijing made more than 40 airlines—including American, Delta, and United—remove references to Taiwan as a separate country on their websites simply by sending them a threatening letter. And in 2021, the Chinese state media egged on a boycott of the Swedish fashion retailer H&M after it expressed concern about forced labor in Xinjiang. H&M sales in China quickly dropped by 23 percent. 

To be fair, China is not the only country that engages in economic coercion. It is, in some ways, endemic to the international system. Writing on these pages in January 2020, political scientists Henry Farrell and Abraham Newman observed that globalization had enabled many countries to leverage financial power in pursuit of political ends, a phenomenon they have called “weaponized interdependence” in their earlier work. This isn’t always a negative. Indeed, in some situations, states have weaponized interdependence to target bad international behavior. For example, the widespread Western sanctioning of Russia for the war in Ukraine and the United States' financial sanctions against North Korea and Iran for nuclear proliferation were designed to curtail illegal and dangerous acts. 

But what China is doing is different, both in scale and kind. The United States may issue frequent sanctions, but these follow a clear set of processes: Washington does not weaponize economic interdependence through such a wide variety of means. One recent study identified 123 cases of coercion since 2010, carried out through widespread boycotts against companies, restrictions on trade, limits on tourism to foreign countries, and other mechanisms. And aside from when the Trump administration levied a bizarre spate of tariffs against American allies, no other government has imposed sanctions or embargoes so casually, penalizing states for mild annoyances rather than broadly unacceptable international actions, such as Russia’s invasion of Ukraine. There is, for example, a direct correlation between countries whose leaders have met with the Dalai Lama and a decline in those states’ exports to China.

Beijing is unapologetic about using these sanctions and does not acknowledge that they violate global trading norms. It is not worried about domestic discontent arising from its behavior because the illiberal nature of China’s political system insulates the government from pushback. And because its trading partners are all more dependent on China than the other way around, Beijing usually has the advantage. As the Chinese ambassador to New Zealand warned in 2022, “An economic relationship in which China buys nearly a third of the country’s exports shouldn’t be taken for granted.” 

                                                                                                                       

Half Measures

Beijing’s long-term objective is to force governments and companies to anticipate, respect, and defer to Chinese interests in all future actions. It seems to be working. Major democracies such as South Korea remained silent when China passed a national security law in Hong Kong suppressing democracy in 2020. In 2021, Brazil did not exclude the Chinese telecommunications giant Huawei from its 5G auction for fear of losing billions of dollars in business. In 2019, after the Gap clothing company released a T-shirt design with a map of China that did not include Taiwan and Tibet, it issued a public apology. It removed the shirt from the sale even before Beijing said anything. After the salmon restrictions in 2010, Norwegian leaders refused to meet with the Dalai Lama when he visited in 2014. And according to reports and investigations by various organizations, including The Atlantic, The Wall Street Journal, and the human rights nonprofit PEN America, Hollywood companies won’t produce films that cast China in a negative light for fear of losing ticket sales. 

Beijing’s apparent success doesn’t mean that countries have sat idly by while China has weaponized economic interdependence. The world’s heavy reliance on Chinese manufacturing—starkly illustrated by shortages of masks and other personal protective equipment in the early phase of the COVID-19  pandemic—has prompted almost every country to become more attuned to its economic security. Japan, for instance, set up a new cabinet position for financial security in October 2021 and passed legislation to guard critical supply chains and technologies. During the spring of 2022, in the aftermath of Beijing’s coercion and the pandemic, South Korea created an early warning system designed to detect threats to nearly 4,000 key industry materials. The South Korean government also established a new economic security position in the presidential office.

Fans watching an NBA game in Shenzhen, China, October 2019

States have also gotten better at redirecting trade, meaning that when China imposes tariffs or an import embargo on a target state’s goods, the target state finds alternative markets. This strategy has seen some success. Throughout 2020, China approved tariffs on Australian barley, coal, and wine in response to Canberra’s calls for an independent investigation into COVID-19’s origins, prompting Australia to redirect these goods to the rest of the world. When China restricted exports of rare-earth minerals to Japan over a territorial dispute in 2010, Japan diversified its sources of critical minerals and invested more in domestic seabed exploration. As a result, it has reduced its dependence on China for necessary minerals from 90 percent to 58 percent in a decade. 

Countries are now following Biden’s advice to “reshore” and “friend shore” supply chains, moving vital elements of the production from China (or places where China exercises inordinate influence) to manufacturers back home or to trusted partner economies. Through the Quadrilateral Security Dialogue, known as the Quad, Australia, India, Japan, and the United States are building resilient supply chains for COVID-19 vaccines, semiconductors, and emerging and critical technologies, including those related to clean energy. The countries participating in the Biden administration’s Indo-Pacific Economic Framework are working on establishing an early warning system, mapping out critical supply chains, and diversifying their sources for imported goods. In June, the United States announced the Minerals Security Partnership, an alliance with Australia, Canada, Finland, France, Japan, Norway, South Korea, Sweden, the United Kingdom, and the European Union to safeguard the supply of copper, lithium, cobalt, nickel, and rare-earth minerals. Japan, South Korea, Taiwan, and the United States are contemplating the creation of an alliance called Chip 4 that would consolidate the semiconductor supply chain. 

These measures are all valuable and necessary. But they need to constitute a comprehensive solution. Reshoring and friend shoring insulate states against China’s disruptions to the production chain while doing nothing to stop its economic coercion: securing the supply of one product does not prevent Beijing from cutting countries off from another product. Indeed, countries’ enthusiasm for participating in such measures is limited by fears that China will retaliate. South Korea, for example, has hesitated to join the Chip 4 alliance partly because it is concerned that Beijing would once again ban many of its consumer goods and block the flow of Chinese tourists. Supply chain resilience, trade diversion, and reshoring can work only if complemented by a strategy crafted to end China’s predatory economic behavior. 

                                                                         

Flipping The Script

Part of China’s hubris in practicing economic coercion against its trade partners comes from the confidence that the targets will not dare counter-sanctions with concrete action. Beijing is suitable to be confident: it is hard for any country to go up against an economic behemoth. China, for instance, accounts for 31.4 percent of global trade in Australia, 22.9 percent in Japan, 23.9 percent in South Korea, and 14.8 percent in the United States—. In contrast, those countries account for 3.6 percent, 6.1 percent, 6.0 percent, and 12.5 percent of China’s trade. 

But these states can fight back if they work together or, in other words, practice collective resilience. That strategy would flip the script. Australia, Japan, South Korea, and the United States may individually be at a disadvantage but combined, they account for nearly 30 percent of China’s imports, exceeding what China’s exports account for in most of theirs. Add Canada, the Czech Republic, France, Germany, Lithuania, Mongolia, New Zealand, Norway, Palau, the Philippines, Sweden, and the United Kingdom—all countries Beijing has coerced in the past—and the collective share of China’s imports is 39 percent. These states all produce critical goods on which China is especially dependent. China gets nearly 60 percent of its iron ore from Australia, which is essential to its steel production. It gets more than 80 percent of its bulldozers and Kentucky bluegrass seed, significant for sowing fields, from the United States. More than 90 percent of China’s supplies of other goods—cardboard, ballpoint pens, cultured pearls—are sourced from Japan. And 80 percent of China’s whiskey comes from the United Kingdom

 

Source: United Nations COMTRADE database

To build a bloc that can stop Chinese coercion, Australia, Japan, South Korea, and the United States must first agree among themselves. The first three governments are the United States’ key allies in the Pacific, and all four nations are major market democracies and the core stakeholders in the region’s liberal political and economic order. A commitment to join forces would not be without risk, but all have been prime targets of Chinese financial predation and have a powerful incentive to collaborate. 

These four states must then take stock of which other countries are willing and able to join in, working through existing partnerships such as the Indo-Pacific Economic Framework to promote the strategy. The 12 other states most profoundly affected by Chinese economic coercion would be the best membership candidates. Many of these countries may be very weak compared with China. But if they joined forces with the four main members, they would enjoy formidable leverage: for 406 items, China imports more than 70 percent of what it uses from one of these 16 states; for 171 of those items, the import figure rises to 90 percent. (Lithuania and Palau do not produce any of these goods, but both are frontline states in need of protection, so they should be welcomed into the coalition.) The four founding countries could also approach the European Union, which is currently considering milder measures to counter Beijing’s coercion, to see whether it is interested in joining their effort. 

The impact of these imports is far from trivial. For example, China relies on Japan for more than 70 percent of its supplies of 114 items, amounting to over $6.2 billion in trade, and more than 90 percent of its reserves of 47 items, worth over $1.7 billion. China is over 70 percent dependent on U.S. producers for 94 items, totaling over $6.0 billion, and 43 items for which China is around 90 percent dependent on U.S. producers, worth over $1.5 billion. All 406 of the “high dependence” goods produced by coerced states are worth more than $31.2 billion to China. 

                                                                                         

Strength In Numbers

But having the capability to fight back is only half the battle. The other half is political will: For collective resilience to be credible, countries must be willing to sign up for it in the face of fierce Chinese resistance. Beijing is likely to use a combination of carrots, such as discounted digital infrastructure, and sticks, such as more export restrictions, to deter countries from joining and try to peel them off if they do. States will need to build enough domestic political support to withstand the external pressure and resist the temptation to free-ride by accepting coalition support without ever actually sanctioning China. 

Given that most participants would be democracies, this will prove difficult. But the pact’s more prominent countries can take several steps to help smaller or poorer states endure the discomfort. They can create a collective compensation fund for losses and offer alternative export or import markets to divert trade in response to Chinese sanctions. Bigger states can also provide clear reassurances to smaller powers that they would not be left high and dry if Beijing slapped them with sanctions. That means the larger countries, mainly the original four, would need to delineate clear actions they would take to restrict important exports to China if Beijing bullied any pact member, even if those steps were economically costly to them. The four organizing members would also have to agree on what types of bullying would elicit a response. Disputes over trade that could be adjudicated by the WTO, such as whether China can adjudicate Western technology patent protections in its courts, would not meet the threshold. The trigger would be coercive Chinese economic actions taken for political purposes.

Yet despite the challenges, states would likely recognize that joining the pact and staying the course is worth the short-term costs. They would need to recognize and explain to their citizens that ending Chinese economic coercion would ultimately be in their long-term interests. China could initially fight against the new group by finding alternative suppliers for one, two, or several high-dependence goods. But suppose tariffs, nontariff barriers, or embargoes were applied to a wide range of the 406 high-dependence items made by prospective coalition members. In that case, the costs of finding new suppliers might cause Beijing to think twice before taking coercive actions. Eventually, China would have to stop such behavior, resulting in a level playing field for all of the collective’s participants. 

The participating states could feel confident that China would indeed stop. Despite its authoritarian system, China has proved quite sensitive to supply chain obstacles, evidenced by the fact that it rarely applies sanctions to imports of high-dependence goods. Beijing was happy to cut off South Korea from Chinese tourists, but it has not sanctioned Samsung; it needs the company’s memory chips. It has not touched Taiwan Semiconductor Manufacturing Company, another critical supplier of computer chips, even as tensions with Taipei reach new heights. In all its sanctioning of Australia, Beijing never threatened Australian iron ore, even though it is one of the country’s most lucrative exports.

Suppose Beijing is unwilling to locate alternative sources for Australian iron ore at dependency levels of 60 percent. In that case, it will undoubtedly be sensitive to the many goods for which it is more than 70 percent dependent on outside countries—not to mention the ones where its dependence exceeds 90 percent. Then there are the 40 products made in the United States and Japan, on which China is 99 or 100 percent reliant. Beijing does not want to lose access to any of them, especially when it is already struggling from a general economic slowdown.

                                                                       

Fair And Square

The idea of collective resilience may trouble proponents of free trade and globalization. But collective resilience is not a trade war strategy but a peer competition strategy. It is defensive, resting first on the threat to weaponize trade, not on the actual use of sanctions. If China does not use its economic power to coerce, there is no need to make good the threat. 

The strategy is also clearly and narrowly targeted. Its participants are not trying to punish China just for the sake of doing so; the goal is not to undermine the nation’s economy. The goal is to deter acts of economic coercion that do not conform to WTO rules and are aimed at meeting Chinese political goals unrelated to trade. According to an analysis published by the Chicago Council on Global Affairs, a nonprofit think tank, about a proposed European Union instrument to combat Chinese coercion, collective resilience could even comply with WTO regulations. China’s acts of economic hostility are beyond the remit of the organization’s laws, and nothing in the WTO rulebook prohibits states from engaging in self-defense. 

That’s not to say that practicing economic resilience will never require sanctions on China. It may well do so, at least at first. But policymakers can rest easy knowing that any sanctions, if properly structured, would ultimately be in service of protecting economic interdependence. That notion may seem paradoxical, but sometimes conducting international relations requires living with contradictions. It certainly wouldn’t be the first time the United States has played dirty to keep a global system clean. During the Cold War, Washington routinely countenanced illiberal practices to protect the liberal order—for example, supporting anti-communist military regimes in South Korea and Taiwan as bulwarks against more brutal nearby powers. Today, the West may need to compromise on its free trade principles to prevent Beijing from corrupting globalization. It may need to be aggressive. A successful defense, after all, requires a good offense—including in great-power competition.

 

 

For updates click hompage here