How Effective Is China’s Economic Bullying?

• In Event: China and Its Neighbors

Abstract

The true geopolitical threat from a rising China may not be from its growing military power but its economic might in the form of asymmetrical trade relationships. For example, China implemented a rare earth minerals (REM) ban on Japan in 2010 over an incident in the disputed waters around the Senkaku/Diaoyu Islands. In doing so, China used its leverage as the largest supplier of REMs in an attempt to achieve foreign policy goals. In an interdependent world that depends heavily on supply chains with China, this presents a real risk to international security.

This paper seeks to assess how big these risks are to China’s trading partners. It does so through medium-n process tracing studies of Chinese economic pressure campaigns in the cases of—Japan 2010, Philippines 2012, South Korea 2016, Australia 2020, and Lithuania 2021 — highlighting a progressive set of decisions by government officials in both countries and their interaction with business actors and other economic constituents.

Despite having the clear upper hand with respect to its economic size, control over supply chain chokepoints, and monopolies over certain goods, such as REMs, China was unable to sustain sufficient economic pressure to achieve foreign policy change in its targets. I find that while businesses’ ability to influence China’s foreign policy is limited, it is sufficient to affect policies that would harm China’s economic growth in the medium to long term. This suggests that as long as the Chinese government is concerned with the economic welfare of its citizens, the risks of asymmetrical trading relationships are modest.

In a broader sense, this work demonstrates the importance of examining domestic-level bargaining within the interstate dispute framework. It also challenges the traditional lens in how asymmetrical trading relations are viewed in the bargaining process. Finally, the use of process tracing illustrates how this technique can be employed to study mechanisms that quantitative measures or narrative accounts cannot capture.

Author

• Anita R Kellogg, National Defense University