How should we combat China's economic coercion?

Hi there, this is Will, and I wanted to share something a bit different with you today. We're keen to expand State of Play this year to bring you even more analysis of the latest developments, but also to highlight some of the most important discussions we're having at CSIS. This week, I hosted a really interesting discussion about China's economic coercion and what we can do about it. China has turned economic interdependence into an important instrument of coercion. They're using their dominant position in international trade to push both states and firms to comply with its political goals. And yes, the United States has also been doing some of this in the past year, with President Trump's expansive use of tariffs to achieve a variety of goals, I moderated a discussion about what China's doing, how other countries can fight back, and how similar China's and President Trump's strategies really are. The event marked the launch of a new book by Victor Cha, Ellen Kim, and Andy Lim called China's Weaponization of Trade, Resistance Through Collective Resilience. If you want to watch the event and see some of the slides that we discuss, you can find a link to the video in the show notes. I hope you enjoy it. Welcome to State of Play. I'm Will Todman, Chief of Staff of the Geopolitics and Foreign Policy Department at the Centre for Strategic and International Studies. In this podcast, we bring together our leading experts to unpack the latest geopolitical developments from around the world and what it all means. I am delighted to be joined by three panellists, The first is the author of the book, Dr. Victor Cha, President of the Geopolitics and Foreign Policy Department, also the career chair at CSIS and a distinguished professor at Georgetown. And along with your two co-authors, Ellen Kim, who's now the Director of Academic Affairs at the Korea Economic Institute of America, and Andy Lim, who is the Deputy Director and Fellow with the CSIS Career Chair. You have just published this book. Congratulations. Thank you. And the book is going to be available for purchase for those of you here in the room afterwards. but we are also joined by Bethany Allen, who is the head of China investigations at the Australian Strategic Policy Institute, ASPE. But Bethany, you're also the author of the book, Beijing Rules, How China Weaponized Its Economy to Confront the World. And I think you win the award for the person who has traveled the furthest to be at an episode of State to Plane. You've just flown in from Taipei. We're so delighted to have you. Thank you so much. And then also Dr. Melanie Hart, who is Senior Director of the Global China Hub at the Atlantic Council, also former Senior Advisor for China at the Office of the Undersecretary for Economic Growth, Energy and the Environment at the State Department. Thank you for walking up the road, braving the cold of this. Not quite as far. Not quite as far, but it is a horribly cold day here in Washington, D.C. um for those of you here in the audience we will open up to your questions later on so please do have a think about what you would like to to ask and as i said um we will uh you'll be able to purchase the book from just outside as well but let's dive right into it um victor uh you have put out another book with a bright neon color the last one about korea was neon pink so um what apart from the fact that you have a penchant for very brightly colored books, what was it that made you want to write this one? Well, first, let me say thank you, Will, for hosting this as a State of Play episode. And my co-authors, one of them who's here, Andy Lim, who did a lot of the data work for the book, and then Ellen Kim, who's not here, I want to thank them. But I particularly want to thank Bethany and Melanie for joining today. I mean, if I thought about the ideal way that I wanted to launch this book, it would be with these two individuals, because Bethany's book, Beijing Rules, was really the first book length work that I read on the topic. because I think she was really the first to focus, really focus in on, from both the journalistic and academic perspective, China's weaponization of trade. And I thought it was an excellent book. And so I'm really excited throughout our book. And so I'm really happy that you made the journey to be here. I hope you're doing other things in D.C. too. I assume you are. And then, of course, Melanie, because of all her work, I was following all the work that she was doing at the State Department on the front lines, the so-called firm, and all the work that you were doing to work with other countries and companies to counter China's acts of economic coercion. So it's just I think I'm going to be more interested in hearing what they have to say. And then I should also want to mention three people, Brad Glosserman. None of them are here. Brad Glosserman, Greg Sayers, and Bonnie Glaser. Because in much shorter op-ed length pieces that they had done quite some time ago, you may have read them. I mean, they argued at one point that we need to think about some sort of collective action to deter China's economic coercion. So I feel like, of course, I've cited them, but I feel like I've just taken their idea and fleshed it out and added more data to it and things. So the color of the book was a conscious choice. Based on our previous book, which was hot pink, we realized that when you pick these kind of colors, booksellers tend to put them on the display shelves, put them right out front on the display shelves. I don't know if that's the case for politics and pros out there, but that's for the color. And in terms of why we wanted to write this book, it's, so as you know, Will, I'm involved here at CSIS and at Versailles and a number of projects looking at the question of the future of global governance and the liberal international order. And there are many things that are disrupting that today. But one of them that has been persistent and consistent for like really the last three decades has been China's leveraging its dominant position in trade bilaterally against smaller partners in ways that are threatening to the liberal international order. Countries are afraid to stand up for Hong Kong, stand up for human rights, make clear sovereign choices because they're fearful of what China could do to them. And so this was one aspect of thinking about global governance that I thought was really important, understudied, except for occasional works like Bethany's, but still very much occupied the work of policymakers. And so that's why we decided to write this book. Okay. And for those of you who are listening, not watching this, we're sort of sitting around a circle and it's almost like sitting around a campfire. And I wonder if it's like the, maybe like the rules of the WTO could be there. But I think we'll get back to that a bit later. But Victor, can you start by giving us a bit of an idea about the main points of the book? And I think you have some slides. Yeah, yeah. So Ezra Klein did this on the New York Times where he did a podcast that included slides. So I think we can do it at CSIS as well. Okay. But it might mean I'll ask you to describe what you're showing. Okay. Well, if Ezra can do it, then I think we can do it. So I'd start out by saying the first point is, you know, it's a parlor game in D.C. to predict in 2027 whether China will invade Taiwan, right? 20%, 40%, 60%, maybe at the Pentagon it's higher. We don't know, right? But there is a 100% chance that China will use economic coercion against target states by 2027, including Taiwan. A 100% chance. In fact, they are doing it right now against Japan, for example, and even against the United States. And so this is weaponization of trade. It's a form of economic coercion. The definition that we use is the one up here on the screen that says the use of non-market mechanisms to weaponize trade in order to exert influence on the sovereign choices of other states. I think that may borrow from Bethany's definition. I can't remember for sure. And then, like I said, I mean, it's economic coercion itself is a peer competition challenge of great magnitude because it's not just a trade issue and it's not even just a sovereignty issue. It's a liberal international order issue because it reduces trust in the open liberal trading order. I know there are other issues here that we will talk about. It affects the way the states will talk about, as I said, freedom, human rights, democracy, territorial integrity, all these sorts of things. So it seems like it's a rather narrow issue, but it has very broad, wide-ranging consequences. If we look at the, and I'm not going to go through all the slides because I want us to have a conversation, but if we go to the next slide. So what we did was we collected data. And again, this was inspired by the work that Bethany did in Beijing Rules. We have over 600 cases of Chinese economic coercion since 1997. the 1997 cases really of the initial cases that we could find had to do with movies Hollywood movies that were about Tibet that the Chinese blocked but it really heightens under Xi Jinping under Xi Jinping we really see a growth in this so 18 countries 470 companies We have a little word art graphic, I think. Next. Okay, that's the breakdown by country. But if you go to the next slide, this is just a graphic of the 470 companies. Many of them are U.S. companies, and many of them are major U.S. companies that have been hit more than once. And that's why their fonts are a little bit larger than others. But basically a huge number of companies. A huge number. And on every continent except Antarctica, basically, we have seen this sort of coercion. And then what's the next slide, Andy? Yeah, so the nature of this coercion is often informal and announced. It's non-WTO conforming in the sense that many of these trade actions are taken not for protectionist reasons, but they have to do with trying to affect political choices. And so in that sense, they are not easily addressed through the WTO. Often there's not a legal basis for action, although that has been changing. China has been adapting its tactics. And as I said, it's usually not over market access or fair trade. It's purely for political purposes. and then if we can just go to the we can skip that and so the way countries and companies have dealt with this has been through a number of efforts to try to obviously to try to create early warning systems for economic security to try to identify supply chain vulnerabilities to to protect supply chains, to do reshoring, french shoring. And these are all important. They need to be done as a way to insulate themselves from the latest Chinese attack or act. But the point of the book is that while these are all important, we also need to figure out a way to stop the next act of economic coercion. So China could go after one supply chain, like neckties, for example, and we may be able to create some sort of protected supply chain against Chinese actions on neckties. But that doesn't deter China from going to the next item and using that as leverage. So what we essentially advocate in this book is a collective economic deterrence strategy, something like an Article 5, NATO Article 5 on collective economic deterrence, where an action by one against one targeted country would result in a response by everyone in the collective economic deterrence pact. that's essentially the idea we can discuss it i know it has lots of challenges but that's that's that's the way we think about this and then um i think the book is actually i don't know i don't know how many pages it's a long it looks like a long book but it's actually a very short book because it's only got like 150 pages of text and then the rest is data and we wanted to put the data in the book, not just on a website somewhere. We wanted readers to have it in their hands because I think the main contribution is we are able to map what are China's trade vulnerabilities with the countries that it has coerced in terms of where China is highly dependent. So I think if We go to the next slide, Andy. So we count there are over 500, nearly 600 items where China has high dependence imports, greater than 70% as a percentage of their total import of that particular good from, in this case, 18 targets of economic coercion. And so the point of this is to say that we normally think that China has all the leverage when it comes to trade. And that might be the case if they're going after one country, but if countries band together, they actually do have leverage. And we can go into the content of some of these high-dependence items, but they do have leverage, but they need to be able to work together to send a collective economic deterrence signal. Okay, great. In a nutshell, that's the book. Okay, and the data goes all the way up to 2024, is that right? Right. Yeah. And I will say one of the things that I was impressed with is how current it feels. I know how long book projects take, especially ones that are working on data collection. This feels very relevant to 2026. Yeah, we actually had to delay the whole production process by like two and a half months because the new 2024 trade figures had just come out. And so we had to redo all the numbers. Well, Andy had to redo all the numbers in the book because of that. So, yeah. Yeah. OK, well, before we dive more into your book, you have referenced Bethany's book a lot. Beijing rules how China weaponized its economy to confront the world. So Bethany, for those of the audience who haven't read your book yet, can you give a bit of a sense of what you sought to do with your book and what some of the main takeaways were? Sure, I would be glad to do that. But before I do that, I want to talk about just a little bit about this book, but really the reports that led to this book. So for those of you who don't know, And Victor Cha and his team published a really important report a few years ago. You published in late 2022, is that right? And then again in early 2023. And that I remember very specifically right when that came out because it was such an important work. It was the first really data-based approach to looking at how countries, any country, middle-sized countries, any country can respond to China's economic coercion. And it really filled a niche, sorry, it really filled a void that existed at that time. And so when I heard that Victor and his team were coming out with this book, I was just absolutely thrilled because this book does what has not been done by anyone so far, which is a completely comprehensive database look at every single known incident of, publicly known incident of Chinese economic coercion. but then builds on that and analyzes that data so that we can see how we can respond specific, you know, in a very detailed way, very specific industries broken down by country and how that can be used to respond And so you know with that kind of as a background I go back a few years to talk about my book Beijing Rules Now when I first started reporting on China economic or use of economic coercion to achieve geopolitical goals back around 2017 And in that time, we tended to refer to it. This term economic coercion didn't really exist. It was not in the common parlance in D.C. or anywhere else. And we just tended to use this term influence, China's influence, which we all knew was far too broad. And we also talked about it often primarily in terms of a kind of extraterritorial censorship that China is, you know, causing other countries or companies or individuals to self-censor as just a form of controlling what they say. But what I argued in my book, which was published now in 2023, almost three years ago, was that China's economic coercion, part of a larger strategy of what I call authoritarian economic statecraft, was actually a form of comprehensive national power that China used not only to control what other actors say, but also what they do. And also what they do, not just in terms of whether or not they're going to engage with the Dalai Lama, but how they deploy their militaries, their trade policy, their own internal decision making, and every aspect of a sovereign country's decision making. And I argued in my book that that was, in fact, China's most important form of power projection, because at the time it's, and I think remaining still to this day, China's diplomatic power and its military power are not as strong as the U.S. and do not yet equal China's economic power. So in my book, I talk about not just the nature of economic coercion, but also, and one thing I really think is so important about Victor's book, and he builds on this quite a bit, is looking at how this overlaps or erodes the liberal international order. So China wields its economic power not in some sort of a neutral way, but explicitly to project authoritarian values or to go against the liberal international order, both the liberal international trade order and democratic norms. And so I argue that this is a key threat to the liberal international system. Can you give some examples of what that looks like to sort of project these authoritarian values in the economics? What are you talking about? Yeah. Well, one of the best examples is South Korea and the South Korea's deployments of the U.S. missile defense system, FAD. And I believe 2016 or 2017 is when it was deployed. And this was entirely South Korea's own, made in South Korea's own national interest, its national security to help it have deterrence against North Korea. Because the SAAD system also technically could reach Chinese targets or could defend against Chinese attacks, Beijing strongly opposed it. And so as a whole raft of measures to punish South Korea for this decision, Beijing issued a whole raft of areas of economic coercion. So, for example, shutting down Chinese tourism to South Korea, punishing Lottie, a major South Korean retail chain, which had a large footprint in China. even making South Korean, so you know, K-pop stars making their music no longer streamable in China, canceling their concerts, and a whole host of other measures. Now people would look at that, well, maybe that's a different point I'll get into later. But this is an attack directly on a key core national security priority of a democratic country that is a close to U.S. partner and ally. And other really well-known elements of Chinese economic coercion being illiberal, of course, would be anything related to any discussion or treatment or promotion or support of Uyghurs, of the Hong Kong pro-democracy movements, Tibetans, and actually an expanding number of issues like that. And one thing that used to really bother me was that people would say that, okay, so this company, I don't know, their CEO posted a selfie of him with the Dalai Lama, and now they're facing trade restrictions on China. Tibet is really important for the six million Tibetans, but it's not an issue of global importance. But the thing is that anytime China has deployed economic coercion to tamp down on some sort of speech like this, What they're doing is showing you the tip of the spear of their power. If they wanted to, on any topic, they can change the behavior of basically any company or any individual or change the course of a whole industry if they wanted to. So if you want to see the extent of China's power, you look at these niche issues and see how far really they can reach into democracies. Yeah. And can I just add to that point, which is the point about self-censorship is really important. I mean, that's something Bethany talks about in her book, because that's like the ultimate form of power, right? When you can get countries to do or not to do or not to say things without even exercising any overt, like coercive power. So that self-censorship point, I think, is really important. And it expands beyond the issue itself. So there might be some action with regard to Tibet. But then that like or like that example that then caused South Korea and other countries to hesitate when it came to the question. When the United States approached Trump, one, approached these countries about closing off their 5G market to Huawei for security reasons. You know, some of them comply, but a number of USIs and partners were like, wait, like, you know, we don't want to get hit by China again. So it has effects that go far beyond the issue that the initial pressure point was exercised. Melanie, I've been sitting very patiently. I've not brought you in yet, but I'd love to bring in the kind of U.S. government response to some of this. And as I mentioned, so you headed up this group nicknamed The Firm. I was just asking you to explain why it's called The Firm Backstage, and maybe I'll ask you to do that again. but it's at the State Department. It was tasked with coordinating U.S. help to other countries and also to companies that were affected by China's economic coercion. So can you talk a little bit about how the firm came to be and kind of what its role was? Sure. So the initiative really developed very early on in 2021 when the Biden team was joining the State Department. we were meeting with the great career foreign service officers and state department officials to talk to them about what should our priorities be. Because we had our own ideas, but you always have to recognize that there have been people in the trenches while you were working in campaign who also have really great ideas and have information you might not have. And it just kept coming up again and again and again that there is this deep dissatisfaction with what the U.S. had been able to offer Taiwan when it was dealing with China's blocking of Taiwan's pineapple exports, and Australia in particular, because Australia had called for an independent investigation into the COVID crisis. And China hit Australia with an egregious, bizarre array of trade measures blocking barley and wine and all kinds of things. They also gave a list of demands. You know, Australia had to curtail their free press, you know, apologize for daring to care how COVID started. It was quite ridiculous. And the United States had offered support for Australia, but there was no playbook for what do you do about the barley, the wine, the lobsters? What do you do about the hard, clear economic costs and how do we help there? And there was a desire to figure out how do we do more than what I call diplomatic thoughts and prayers? You know, our thoughts So it just so happened that as my then boss, Jose Fernandez, was being confirmed as undersecretary, Lithuania was hit with Chinese economic coercion. And we really wanted to use Lithuania as a test case to say, let's do everything we can to help Lithuania concretely. And by doing that, figure out what are our tools and can we succeed in helping a country economically? And the great thing was from Jose to Blinken to Biden to Congress, everybody said, leave nothing on the table. Just go get this. And with Lithuania, we directly responded at their request to the measures that China took. So China blocked Lithuanians agricultural exports from Lithuania to China. So we worked to help Lithuania through some of the processes to export more to the United States. We were facing a bird flu epidemic at that time, and we were short on eggs, and eggs are really expensive. So we were able to import more eggs from Lithuania, which helped American consumers and Lithuania at the same time. Overall, Lithuania's ag exports to the U.S. went up 19% year on year. We signed, the U.S. Ex-Im Bank signed an MOU with Lithuania. China had about $300 million of export credits that they'd canceled. We offered $600 million from U.S. Ex-Im Bank. There was an array of measures that were successful in helping the Lithuanians. We can't replace what they're buying and selling from China, but it's kind of like if you suddenly get laid off and you get a bunch of job interviews and offers and you can see what that opportunity looks like and start working for that pivot, we were able to throw those lifelines for new markets and opportunities to Lithuania and they made a successful pivot. Can I just rewind a little bit? What sparked the Lithuania crisis or this issue? Why did China take these measures against Lithuania in the first place? Yeah, that's a great question. You know, Lithuania allowed Taiwan to open a Taiwan representative office in Vilnius and called it a Taiwan representative office instead of Taipei representative office. per European policy that does not in any way violate Europe's one China policy. Brussels has been pretty clear on that. And there are precedent for other offices that call themselves Taiwan representative office, but China didn't want anybody else to do that. So they decided to try to make a lesson out of Lithuania. And our surprise at the State Department was, we were 100% focused on helping Lithuania, but then other countries just started banging down the door saying, we have a thing that we want to do. We know Beijing won't like it. Are we eligible for the Lithuania package? We thought, oh, okay, yes, we better figure this out. And so we just started pulling in more people and fanning out across the interagency and developing robust packages. And the firm, why is it called the firm? The reason we came up with that name is I did some work in consulting before and there was a common pattern to what you do in business consulting, which is as somebody working China business consulting, you've seen it all before. China's using the same playbook everywhere. So you can tell American companies, OK, here's what this is going to look like. The threats you're getting, every other company is getting the same thing. industrial policy, let me explain. It's just the same playbook. And it was the exact same thing with countries facing Chinese economic coercion. It might be their first time to receive this kind of threat, but we had three last week from other countries that all looked the same. So we were able to, by working across many different cases, you get to learn what the playbook looks like, how China will behave, how this will unfold, what works, what doesn't work. And then you can share all of that lesson learned and advice with whoever comes in the door needing help. Great. Bethany, moving back to you. So a lot of your research and reporting as well has looked at sort of how companies and countries also responded to these coercive measures by China. So can you, before we get to the bit about the sort of options for the US to help, how have you seen other companies and countries around the world respond when they face these threats? Yeah. Well, one of the things that one of the major points I wanted to make in my work is that companies and individuals and countries respond rationally when China engages in acts of economic coercion. So when you see a target of economic coercion give in, they are simply responding to the way that our economic system has trained them to respond. And in my book, I refer to our economic system as neoliberal, meaning there's minimal regulation and not a lot of work to create democratic guardrails around international economic behavior. And so why is it that you see, especially before economic coercion became more well understood, you saw company after company after company and governments giving into this? It's because what you had was the world's largest and most powerful authoritarian political party on one hand versus one company. Who is going to win every time in that fight? It's going to be the world's largest authoritarian political party wielding control of the world's second largest economy. And that is not that company's fault. Now, it's fine to shame that company or to shame that government, but it's not going to work because they are out for their own survival. And so what you have to do if you want to actually change the way that people or companies or basically targets respond is to make it an issue, make it a fight among equals, a contest of equals, which is to lift the fight from a country to a company, to a country to a country level. And the only way to do that is through either collective action or through economic regulation. And what we had before, Melanie, and you mentioned this, was like with Australia and Australian wine, for example, there was a 100% tariff or something put on Australian wine. And so there was this hashtag, I don't know if it was Freedom Wine or something, basically buy Australian wine. And so, you know, people in Europe and the U.S. and Taiwan individuals bought Australian wine. That is great, but that is not enough. That is far from enough. And so what we've seen in the past five years, in part because of work like what Melanie was doing at the State Department, is a growth in the discussion around and the mechanisms that are available to help targets of economic coercion stick together, either through providing them actual support in the form of subsidies or other kinds of assistance, or working on ways to push back together, which, of course, is a great way to segue into Victor's own work. Definitely. But, Victor, I'm sorry, I'm making you wait now. But before that, Nellie, I do want to ask you a bit about your reflections on your time at the State Department and in the firm there. I appreciate there are some pieces of this that you can't talk about publicly. But from what you can, what seemed to work and what didn't seem to work in terms of the types of support that the U.S. was able to give to others that were facing these kinds of threats? So two things were really critical. One was helping leaders understand what types of targets China's likely to hit and what they're not. Because sometimes national leaders can get too in their head about what the China threats are. China is limited in the leverage that it has. And that leverage is sometimes not as broad as some leaders think. So helping to right size what's likely to happen so that leaders can make good decisions about their ability to take on Beijing. And then the second piece is being able to do what I call kind of emergency de-risking. So we're all, the global community is working on de-risking and reducing their over-reliance on individual nations, particularly China, because we know that China uses supply chains as a weapon. And that's a long, slow process. But in cases where China is likely to deploy economic coercion or they're threatening economic coercion if we can come in with the emergency de such that follow through if you want to Beijing but it not going to work nobody cares now then that a successful case because the government of that country can proceed with whatever action they decided is in their national interest And now they just fast-tracked the de-risking they needed to do anyway, and there's nothing that China can do effectively to respond. That's to us what a win would be. And so Victor, I'd love for you to go into a bit more depth about what you're proposing here and this idea of collective resilience. So firstly, how did you come about concluding that you think that is the solution here? Well, in terms of how we came about it. So as some of the people in the room know, I'm actually not trained as a political economist. I'm trained as someone who does IR and alliance theory. But we learned from the literature in security about security deterrence, that one of the ways to stop an actor from doing something is through the threat of retaliation, right? Through the threat of costly, what would be costly for the adversary, costly actions through retaliation. And so really the work here, I mean, from an academic perspective, is this whole question of weaponization of interdependence is what we call the new interdependence literature. And it's really combining the new interdependence literature with traditional security deterrence literature, which is how we came up with this idea of collective economic deterrence. The one thing I will say also in terms of the work that's been done in this area, there is a body of work out there that says, and this is to Bethany's early point, that says, well, you know, China does these things, but they're actually not that effective. Right. You know, they'll sanction Taiwan pineapples or they'll, you know, they'll go after like rare earth exports to Japan, but they only get it for two months. But the point is, is that it's like Bethany said, it's the tip of the spear, right? They just need to do that a little bit to just send the message that you better behave. Otherwise, we can do a lot more. So there is an argument out there in the literature that says, oh, you know, this isn't that effective. But the metric for how you determine effectiveness is not simply whether that active economic coercion at that discrete moment achieved the behavior that it wanted to. In the case of Korea and THAAD, there are many people that argue, oh, they used this major campaign against Korea and it didn't work because the THAAD battery is still there. Right. And it's true that that battery is still there. But at the same time, like the Koreans were very shy on 5G, the 5G issue. They a previous president agreed to the so-called three no's where Korea committed that it would not engage in war missile defense installations on the peninsula, that it would not engage in trilateral missile defense with the U.S. and Japan. So, you know, so it was effective in that sense. So in terms of the collective economic deterrence argument, let me just make three quick points. The first is that, so we collected all this data showing where there are, where China has high trade dependencies on many of the countries that it has coerced. we also showed that there are secondary and third order suppliers of those of that particular good that China is highly dependent on that also happen to be like-minded states of the like-minded sort of western oriented states so we just just didn't pick every high dependence item out there we look for high dependence items above 60% to 70%, of which the second and third suppliers of that good to China were also like-minded partners. Andy, if you go to the pie, so we have this pie chart with some examples that shows, for example, if we look at OLED panel displays, where the Chinese are highly dependent on South Korea, and I can't read that. 94% or something? Yeah, 94.01. Yeah, so the second and third suppliers of that are Japan and Taiwan at, what, three and two, something. So if you add those all up, you're talking about nearly 100%, right, dependence. So we look for these types of items. Another good one is silver powder, where Japan provides like 94% of China's import of silver powder. So solar powder is used as adhesives for solar panels. So it's an intermediate good. It's not just any, but it's an important intermediate good. And then the next two suppliers of that, based on 2024 data, are the United States and Taiwan. And if you add all those up again, you get to nearly 100%. So we looked at these particular subset of items and said these were the ones that could have the most effect. And then the third aspect of it was to look at what we estimated to be China's ability to substitute imports with domestic production. And so it's not easy to find a metric for that, at least in the open source, it's not easy to find a metric for that. So we use their reported exports of the product as the proxy variable. and so if we go to the next slide if you go to the next one Andy just give people an example so we took a bunch of these products and looked at how much does China say the export of it versus how much do they import as a ratio and so if that ratio is greater than one or two it means they export twice the amount that they import they could easily sort of adjust but if that ratio is closer to one or even less than one, then it's very costly. The point is it's very costly for them to adjust. And if it's costly for them to adjust, that then creates costs for them to use economic coercion, where right now there are no costs, you know, very little costs for them to use economic coercion. So that's sort of the data behind how we put together. And we have in the book, we have like there are many items, but we have sort of a subset of items. And then the last point on the strategy is that, like, I don't know, Japan has like 94 items that are high dependence. The idea behind a collective deter strategy would not be to say to Japan, OK, you need to leverage all 94 items. If they go after Vanuatu, right, the idea would be the group would come together and they would all commit to leveraging just like one or two items. so it wouldn't be a huge hit to their overall trade with China and again it would collectively send a costly deterrence signal to China. So that was the idea. Now I know politically there are lots of issues with trying to pull together a group like this. It's like herding cats or worse than herding cats because it's not just governments, it's also private sector. It also requires domestic legislation. It's a very complicated thing. but that's the idea in theory how it should work. Melanie, when you were thinking about the tools that you had and the tools you would have liked to have had to help push back is there anything that you would have liked to see or you would like to see be developed to help the pushback against Chinese economic coercion? Yeah, I mean I think it's really important to be doing creative thinking like this and so kudos to Victor and the team I think we need to be creative and innovative and thinking about new options. I'm skeptical that this kind of approach would be useful in most cases, because in most cases, the target nation is a small to medium country that doesn't want to be the point of the spear for the rest of the, you know, developed the industrialized economy. usually what countries want is to de-escalate rather than escalate because they fear, for example, if you have little country A that's in a dispute with China and then you have the U.S. and Japan and the U.K. and all these big countries come in, they assume China's just going to punch them really hard, that they're going to be who really takes the brunt and that while this is all playing out, their economy is just going to bleed out and they're going to have investors fleeing. and what they want is de-escalation. So there might be some specific cases in which it would rise to this level, but most of the time what you want to do is just to completely nullify China's ability to do harm, in which case it just poof, it just disappears. And that's what the demand signal is from the targeted countries. They don't want to scare business away. They don't want it to get into a heavy kind of political war because then investors flee, which is what China wants in the end. So the main things that I would want as a policymaker are money and people. In the State Department, there is no single person whose job is countering Chinese economic coercion. In the Biden administration, we had the luxury of a leadership who really prioritized it. So I was able to make it a priority. We had a great, great group of people working the firm, you know, about half political appointees and half great career experts. We really need, I know Congress has been experimenting with different kinds of legislation to make this part of the State Department's mandate so that we have people whose job is countering Chinese economic coercion so they can be working that beat like good consultants so they just see the cases. What we learned is when you're working this every day, you learn a lot and you're so much better at marshalling the response. So we need to be able to have people who this is their day job. And we had that in the previous administration. And I have, you know, high expectations that the current administration with congressional support will figure that out. And then the second thing is, is some money to move things. We were really creative with little to no resources. But there are, I mean, if you take a case like the Philippines, which has publicly been targeted by Chinese threats before. China's hit Philippine bananas before. You would want the ability to do some targeted support. For example, if China were to block Philippine banana exports, I would want to be able to do something like provide banana seeds for Philippine farmers so that that year's crop is less important and China's actions are less important. And it would be helpful to have targeted support for doing things like flying into capitals and running tabletop exercises with the interagency in a country that's facing this so that we can help them prepare for how this scenario is going to unfold so that they're ready. And, you know, money and people. Okay, great. And I say that, like, half the battle of this is in deterrence is about signaling, right? Whether you're talking about security deterrence, half the battle is signaling. And so while that sort of work, as Monji described, needs to go on, there needs to be sort of a higher level organizing that's taking place, recognition of the problem and organizing that takes place. Because that in and of itself sends a signal that countries are not going to stand, countries and companies are not going to stand for this anymore. So we've seen some of this right at the G7 Hiroshima summit. We saw the G7 leaders come out and say, not only talk about protecting supply chains and de-risking, but also talking about, you know, recognizing and the need to organize. I think the term was either to stop or to counter or even to deter. Or I think subsequently, Secretary Blinken started to say deter economic coercion. And that's like a really important message. So if we fast forward to today, you know, as many in this room know, China's carrying out an economic coercion campaign against the new government in Japan, right? For basically a restatement of what is Japanese defense policy when it came to Taiwan. You know, China is going after rare earths. It's stopped stopping student exchanges. It's taking a number of actions against the new Takeichi government in Japan right now. um and so in a situation like that like i think it would be good if south korea australia and the united states called china out on that maybe they don't actually retaliate but at least call china out on that and unfortunately we don't see that happening right if anything the trump administration did the opposite it told called takovichi and said like tone it down a little bit and the South Korean government, despite having a bilateral meeting with Japan, said that's really a Japan-China problem. They're kind of decoupling from it because they don't want to escalate, right? And, you know, I can understand why they do that, but we're just going to, this is just, this will replay over and over again, right? And just for a quick plug, so the most recent State of Play episode, I asked all of our program directors to say their boldest predictions for 2026, Some of them are more fun and more positive than others. But one of the not very positive ones was our colleague Bonnie Lin said she really worries that this spat between Japan and China could really escalate in this coming year and take on a military and security dimension that could be really dangerous. So, I mean, the escalation threats are certainly real. But you just mentioned President Trump. And I feel like he's been something of the elephant in the room throughout this conversation so far, because, of course, President Trump is also using tariffs as a tool of economic coercion. He just threatened France with, I think, 300 percent tariffs on Champagne if France goes ahead with not joining the Board of Peace, as President Macron said. So, Victor, one of the things, as I mentioned at the start, I'm kind of impressed that you managed to update this quickly enough to tackle that in the book. But can you just lay out what do you think President Trump is taking a similar strategy to some of what we've been talking about today in terms of economic coercion? Or are there key differences between his strategy and China's? Yeah, well, it's certainly the elephant in the room. Anytime I give this presentation, I've given it in different places around the country at universities where literally there are people in the back of the room laughing while I'm giving the talk because they're like, you're talking about China being the economic coercer? Look at the Trump administration. So I would like there are two responses there. The first is so economic coercion, although it is part of the new interdependence literature, is not something that's new. It's a form of economic statecraft. We've seen it before. And the United States has used it before. But it's often been in support of U.S. domestic law, existing U.N. Security Council resolutions that are going after countries for invading another country, human rights violations, non-proliferation, WMD proliferation. we've seen economic coercion along those lines. Again, non-market measures that are taken not for trade purposes, but try to affect the state's behavior, but in support of domestic law or UN Security Council resolution or an international norm of some sort. So that is not new. It's always been a part of the U.S. toolkit. Obviously, what we're seeing during the Trump administration is something that's different, right? which does look a lot like economic coercion. Now, I would say the initial Liberation Day reciprocal tariffs, and there would be people who disagree with me, but according to the definition of economic coercion we use in the book, the reciprocal day tariffs were not a form of economic coercion because they were trade-based. They were basically to balance out what the president saw as a huge asymmetry in the average tariff rates of the rest of the world versus the United States, He believes the average tariff rate in the United States was 2% to 3%, and he believed that the rest of the world's average tariff rate was, I don't know, 14% to 16%, or maybe a little bit more. That's how he eventually got to 15% in the end, where kind of most of the major trading part. So that would not be a definition of economic coercion. But the tariffs on Canada and Mexico for fentanyl and border security, that's economic coercion. Or, as he said at Davos today, the potential for tariffs against countries who would not support his position on Greenland, that's economic coercion. That very clearly economic coercion So and then the second point I would make is that in the broader scheme of things what we're seeing now from the United States attracts a lot of attention in the economic coercion space. Clearly, it attracts a lot of attention. But my hope is that this is a temporary thing that's associated with one administration. But what China has been doing is a three decades old strategy that they have used systematically and persistently without failure as a regular tool of diplomacy. I think Bethany makes this point in her book that what distinguishes this is it's not like a spasmodic policy. It is a regular tool of foreign policy that they use to achieve their goals. Can I add one bit to that to agree with that completely? And one important distinction, while I would not be pursuing this tariff everybody everywhere all at once approach that we're seeing from the current administration is pretty transparent. Right. So you have the president himself stating what the rate might be. You know, you have the the board with all of the rates for every country. So whether or not we agree with it, the U.S. is being incredibly transparent. It's a tariff. Here's the rate. Here's what it applies to. China operates in the shadows. So with Lithuania, if you ask any Chinese government official, they never. What are you talking about? The name of Lithuania just magically disappeared from China's customs database. So goods couldn't come in or out. They, by design, hide what they're doing to make it harder for targeted countries to bring legal action or to go to the WTO, which not very effective, but that's what we've got. And they're very careful to hide what they're doing. I think that distinction is important. You know, China won't say we're mad at you for this other issue. So we're going to block your banana imports and hold them at the dock. They'll claim there's a bug in all the shipments of bananas that only this one Chinese inspector can see. And no, you can't check yourself. Right. I mean, so they're they're being opaque by design. And I think that that distinction is really important, too. There's actually, I can't remember the name of the scholars, but there's actually a really good study that was done by two scholars that looked at, I think they looked at Norwegian salmon. And then they looked at, oh, I think it was the blocking of tourism from China to South Korea over that. And they actually traced how the Chinese instructions for both of those cases were not, there was no paper trail. Like purposefully it was done like through phone calls and other sorts of things from the customs agency to whoever it might be. It was really some really interesting work that was done to exactly make this point to try to be less transparent. I mean, part of being less transparent is that it's hard for countries to organize or to call it out. It also allows the Chinese to have plausible deniability if it doesn't work. I mean, the thing about Trump's transparency is there's also a high risk of failure that will be very visible. In this case, like if European countries choose not to take its position on agreement. If I can maybe just add on to some of this, I completely agree with everything that Melanie and Victor have said. And one thing I really appreciated about Victor's book was how he, throughout the book, wraps in discussion of U.S. use of economic coercion, both historically and in 2025 by Trump. In my work, I would frequently, the most frequent kind of pushback that I would get from people who are left of center would be, oh, you're calling out China for its economic coercion. But what about, you know, U.S., the U.S. extensive use of sanctions over the decades? And the distinction that I would always make is that, first of all, U.S. sanctions, financial sanctions in the past have operated with a very high degree of political restraint. There wasn't really any legal. It would have been legal for the U.S. to operate with a lower degree of political restraint, but they didn't. So what I mean by that is the U.S. wasn't sanctioning, you know, individual citizens in Europe for criticizing the Republican Party or the Democratic Party or, you know, these sort of very sort of narrow political interests. Whereas Chinese economic coercion is and has always been the exact opposite. It has only ever been for narrow Chinese political interests. And in the same way, and Victor, you just mentioned this, U.S. use of sanctions over the decades has overwhelmingly, not completely 100 percent of the time, overwhelmingly been in support of goals that are agreed upon by the multilateral community. Now, the multilateral international community has not always supported U.S. use of sanctions to achieve those goals. But, for example, U.S. sanctions to punish weapons proliferators, gross human rights violators, terrorist use of sanctions to uphold the integrity of the international financial system by pushing by trying to punish money laundering and bribery and corruption. this kind of thing. Whereas again, on the Chinese side, literally the opposite. China's use of economic coercion has never, I don't know of a single example, ever been used to accomplish a multilaterally agreed upon goal. Ever. You know, one can imagine a world in which China uses economic coercion to punish countries who refuse to sign on to climate goals. China doesn't do that. They could, but they don't. So I've always made this distinction. And what has really changed about that now is that whereas, you know, three years ago, it was hard to even envision what a sort of a U.S. political maximalism would look like in the use of sanctions and tariffs. Now, it's very easy because we are getting that, in fact, all the time. And I would say it seems to be something that Trump is, at least right now, using more and more of. And again, using it in the same way that China uses economic coercion as a tool of comprehensive national power. So the recent threat for a 25 percent tariff rate on European countries if they were to oppose U.S. annexation of Greenland. And what has also been interesting to me as an observer is that I used to think up until 2025, I was pretty much on board with the idea that the U.S. and China were near peer economic competitors. Yes, the U.S. economy may be larger still, but really they're just about the same. and Trump's use of tariffs, even as Victor Reilly points out, not in a manner of economic coercion, but Liberation Day last year. Once Trump started levying tariffs on countries in this way, it astonished me to see how the world just immediately got in line. And one of my opening anecdotes in my book is, and at the time, what I was so shocked by was was China's use of tariffs and other forms of economic coercion against Australia in 2020, when Scott Morrison, then the prime minister of Australia, called for an investigation into the origins of COVID on the floor of the United Nations. And it was this stunning move when China unleashed these very obviously politically motivated tariffs against one country. and last year we saw that against all the countries by the U.S. and that the U.S. could do that and that so many countries would just do their best to try to do what the U.S. wanted. To me, it has underscored that the U.S. economic power actually is still quite a bit higher than that of China, which has been an interesting observation for me. And the last point I want to make is about the idea of deterrence. and Victor, you've just mentioned and what your book gets into is that, and man, it is such a pet peeve of me when people say that China's economic coercion doesn't work. Really, really bothers me because yes, you can point to examples like South Korea and SAD or like Australia and say, well, China's measures didn't work because South Korea didn't just suddenly go, oops, nevermind, we're gonna undeploy this. And South Korea didn't go, oops, nevermind, we don't know where COVID came from and it's okay if we don't know. That did not happen. So the immediate target did not give in. However, in Chinese, there's a saying, you kill a chicken to scare the monkey. And what's happened is that China's use of economic coercion is basically the world's history's most successful public relations campaign. Every single person, every single actor, every single government, every single company with any kind of relationship to China at all knows what the red lines are. All of them know. and they all know that even if they choose to cross them, they have a pretty good sense of what that risk might be. And so it's this incredible deterrence against that kind of behavior. But in some ways, that's actually good news because what the U.S. and other, I would say, like-minded partners, but we're at a different stage now, other countries that oppose China's use of economic coercion, what we don't have to do is come up with like a $1 trillion slush fund to help victims of China's economic coercion. Because a lot of times the reason China's economic coercion is effective is not because it has caused such an extraordinary amount of harm, but because it causes fear of harm. So to mitigate that, what we need is our own economic deterrent, which is exactly what Richter's book goes into in detail. We need our own psychological deterrent just to say, you're not doing this because you're afraid of something. Let's fix that fear. And that's much easier to do than to say, we will give you $100 billion to mitigate this economic damage. Can I just say three things quickly in response to the last couple of interventions? The first is, on China, I think China clearly is the most egregious violator of weaponizing trade. But in defense of China, too, there have been occasions in which they have used economic coercion in support of a U.N. Security Council resolution. So like when I was in government doing the North Korea stuff, U.N. Security Council resolution 1718-1695 called for sanctions against North Korea. And in China's case, you know, for a period of time, they complied. Right. So that is a form. But I mean, but again, that's that is like the exception that proves the rule. Right. In that case, it's them complying like they've been willing to comply with sanctions against Iran and this kind of thing. Right. Iran is another example. Yeah. But again, these are exceptions that prove that prove the rule. Second point is that Chinese tactics when it comes to economic coercion are changing. Right. Now, they are trying to embed these in sort of a national security exception or, you know, saying we are having more stringent export licensing requirements. Like they are trying to create domestic legal or national security bases for the actions that they're that they're taking. So their strategy is evolving. Right. I think their strategy is evolving. And also, I would say, based on surveying the trade data, and Andy has done this as we look at it year over year, China is aware of the goods where they have high dependence on Western-oriented countries. And they are trying to change that. Like, we can see them trying to change that. We see it particularly with trade composition with Japan. They're trying to reduce their vulnerabilities. Because I think they, you know, they understand that for the longest period of time, they could just sanction these countries. And like they knew these countries would not dare respond. They would not dare retaliate. But that so that in taxes. And then the third point on your question about Trump is. So. Part of this is right. The U.S. is the elephant in the room. But at the same time, and we wrote an op ed about this the week that Trump was in Asia. like Trump is always looking for leverage on China right he's always looking for leverage on China you know whether it's about merchandise trade surpluses or whatever it might be he's always looking for leverage on China and so this is one one area where he can to gain leverage on China he could stop tariffing the allies and start pulling them together in some sort of coalition to create leverage on China, right? Again, a full-fledged collective resilience strategy requires all sorts of domestic legislation, international cooperation, norm creation, adjudication mechanisms, all these sorts of things. But even just talking about moving in this direction can send important deterrent signals that reduce the fear, right? that sort of try to address the fear question. Okay, so I now have the unenviable task of attempting to summarize some of this. An hour and a half of a really rich discussion, but I think you have laid out the ways in which China does use its economics as a key source of its power projection. Drawing from your book, the way in which it spreads the authoritarian values. But this is just the tip of the spear, and it's about creating fear and about self-censorship as well to really discourage others and to control their political behavior. But then, Melanie, you've talked a bit about some of the ways in which the U.S. has been responding. You've described about the firm, the team you were in at the State Department, growing its toolkit, de-risking supply chains, helping with emergency packages, being really creative about where to find sources of funding for that. But ultimately, you said, you know, countries tend to want to de-escalate here. And so that's a challenge to the response and limit some of the tools. Victor, I think your book lays out that there are real vulnerabilities that China has. And you've collected and Andy has collected all of this data to show that. One of the ones that stood out for me was the silver powder. China is so famous for exporting solar panels around the world. And yet it is extremely reliant on the US, on Japan, and other like-minded allies for these. So we could think about this in terms of more traditional security deterrence, thinking about a collective response. And I think you've started to lay out the ways in which that could take place. Melanie, you've said, don't forget, you need a team, you need staff in the US government to be doing this, and you need the resources. And so hopefully, congressional action will be able to support that to enable the US to play a longer term role. And then you haven't shied away from the elephant in the room that we keep talking about. So the differences between how President Trump is doing this and how China is doing this. But I think you have teased out some key differences, as awkward as this may be. China is really operating in the shadows in quite an obscure way, whereas President Trump is being very overt about exactly what he wants to achieve from it. China's been doing this for decades. It's a relatively new tool for the US government to be doing it. Perhaps not one that will remain, we'll have to see going forward. But also China's really focusing on very narrow political interests. So to dive deeper into this, I would really encourage everybody to get out your sunglasses for this book. Get a copy of the book. You can buy it outside. You can buy it online. I am no economic expert at all, but I read it this weekend and really enjoyed it. And I'm not just saying that because Victor's my boss. But I would say if you want to, of course, if you want to dive deeper into it, please do read it. There's also the foreign affairs piece that you mentioned, Victor, and lots more analysis on the CSIS website. I want to say another congratulations to you, to Ellen and to Andy for putting this together for making it so timely and being creative in a solution to an enormously challenging problem. For those of you watching, I hope you will come back to State of Play. We have podcasts on a whole range of issues, and you can go to csis.org forward slash geopolitics to find that. Thank you so much for watching. Thank you again for taking part. Thank you, Bethany. Thank you, Melanie. Thank you, Victor. And thanks to everyone else who made today's event possible. Thanks for listening to State of Play. If you enjoyed this episode, subscribe to it wherever you heard it. And you can find more analysis at www.csis.org forward slash geopolitics. Until next time.