Economic wars between America and China

Xi Jinping very recently publicly complained that the United States is holding back China’s economy. He is obviously referring to American-led alliances that have virtually imposed sanctions on countries and companies not to export American technology to China. Major examples of this are banning the use of 5G technology by American companies and the use of the popular TikTok by government institutions in the United States.

Generally, the European Union countries and the so-called Quad – which refers to the four-country alliance of Japan, India, Australia and South Korea that was set up to be a check on Chinese expansion – are following the American lead. These governments – Quad and EU – are not only allies but also prominent market democracies and stakeholders in the world liberal and political order.

Recently, the Quad and the European countries have tried to expand their alliance. In June last year, the United States announced the Mineral Security Partnership, an alliance composed of the United States, Australia, Canada, Finland, France, Japan, Norway, South Korea, Sweden, United Kingdom and the European Union to safeguard the supply of copper, lithium, cobalt, nickel and rare earth minerals. China is the leading producer of rare earth minerals. There are also ongoing talks between Japan, South Korea, Taiwan and the United States to create an alliance called Chip 4 that would consolidate the supply chain for semiconductors. There is presently a looming global shortage for these semiconductor chips.

Economic sanctions have been used by the United States and its allies to put pressure on countries that have different political agendas. A current example is the sanction imposed on Russia after it invaded Ukraine.

China has also used economic coercion to achieve political objectives and to punish countries that appear to have differences with Chinese political ambitions. This has proven to be also effective because China has the second largest economy in the world and has a huge market of 1.4 billion people.

Although there has been a lot of talk about countries decoupling from Chinese manufacturers to lessen dependence on Chinese supply chain, this has not been successful. Beijing’s long-term objective in the use of economic coercion is to force governments and companies to respect and defer to Chinese interests in all their present and future actions.

This methodology seems to be partly working. For example, major democracies such as South Korea remain 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 2010, after the 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. It was no coincidence that Norwegian leaders refused to meet with the Dalai Lama when he visited Norway in 2014.

After South Korea agreed to host a US missile system in 2016, China forced stores in China owned by the 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.

The Uyghurs is a Muslim minority living in northwestern China. There are documented evidence of persecution and imprisonment in concentration camps. However, very few countries have condemned Chinese action against this religious minority. Even Muslim countries have not expressed any objection to the ongoing persecution of this Muslim minority.

China has also used its status as the largest consumer market in the world to silence any criticism from the private sector. For example, in 2021, the Chinese government-controlled media encouraged a boycott of the Swedish fashion retailer H&M after it expressed concern about forced labor in Xinjiang, a Chinese province populated predominantly by Muslim Uyghurs. H&M sales in China immediately dropped by 23 percent.

According to human rights groups, Hollywood companies will not produce films that will cast China in a negative light for fear of losing ticket sales in China. China’s economic coercion has not always been successful. When Australia called for an independent investigation of Covid-19’s origins, China increased tariffs on Australian barley, coal and wine. Australia was able to find other markets for these products.

In 2010, China restricted exports of rare earth minerals to Japan over a dispute over the Senkaku Islands. Japan was able to reduce its dependence on China for these critical minerals.

The widespread use of sanctions by the American government and economic coercion by the Chinese government have extremely negative effects on the world economy. Both the West and China ideally should maintain adherence to the principles of free trade. However, the growing competition between the two superpowers, United States and China, will become even more extreme. This new Cold War will only increase with the use of economic boycotts.

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