Dealing with Chinese economic coercion

What are gallium and geranium? Earlier this month China announced that effective Aug. 1, it will put export bans on these two seemingly obscure metals.

Most of us have probably never heard of them, but they are key to the global production of things we use every day in Montana: medical devices, telecom products, and crucially, semiconductor chips, the technology building blocks at the heart of the U.S.-China technology battle.

They can also be considered the latest weapons in China’s economic coercion toolkit.

So just what is economic coercion?

“It is the use of economic tools to enforce political costs,” said U.S. Ambassador to Japan Rahm Emanuel in an interview on July 8 in Bozeman before giving a speech to celebrate the 40th anniversary of the Maureen and Mike Mansfield Center. The goal too is not just to make a country “pay an economic price, but it is also to send a message to others: ‘there for the grace of God goes I,’” added Emanuel. “They use either their market or their power in a particular sector to inflict political pain and economic pain and to coerce your behavior. And it is the most persistent and pernicious economic tool they have.”

Beijing certainly has thrown its economic weight around before. More recently, after Australia called for an international investigation into the origins of Covid, China responded by restricting imports of Australian wheat, barley and wine. In late May, China announced it would stop using certain chips made by Boise-based Micron, saying they were a risk to China’s critical infrastructure.

Here in Montana, China's overseas ambitions were brought home to all of us when a Chinese spy balloon floated over our state earlier this year.

China has long been skilled in dividing and conquering: fearful of losing market share, companies and sometimes countries have been loath to speak with a unified voice when confronted by economic coercion.

But thankfully that seems to be changing. At the June G7 summit in Hiroshima in May, countries including the U.S., Canada, Australia, Japan and Britain put out a joint statement against the practice, describing a “disturbing rise,” in “attempts to weaponize economic dependencies.”

“A unified response is the best way to beat coercion,” and that is true on “strategic terms, military terms, political terms and economic terms. That is our ace in the hole,” explains Ambassador Emanuel, adding that international economic and business relations have already begun to change with companies fearing getting caught in global sanctions, whether aimed at Russia’s invasion of Ukraine, or during a crisis involving China and Taiwan in the future. While the world is not de-globalizing as some have argued, some companies have started to reduce their operations or diversify from China as Apple has done, as “cost and efficiency [in business] are being replaced by stability, sustainability and security,” he says.

I couldn’t agree more. In the post-pandemic, post-trade war era, the free market, free trade calculus which has defined most global business relations to date must change to one that also considers the power of politics. We are all facing a brave new world of economic coercion from China, Russia and others, and countries and companies – including those here at home in Montana (China is the world's biggest buyer of American farm products, so we can't really afford to ignore them in our largely agricultural state).

All of us need to find a unified and effective approach to dealing with this new challenge now.

Dexter Tiff Roberts is the director of China Affairs at the Maureen and Mike Mansfield Center at the University of Montana. He is also a nonresident senior fellow at the Atlantic Council and has founded and publishes a weekly newsletter "Trade War" on China’s economic and business relations with the world.