In recent years, China has increasingly relied on its economic strength to push its political agenda. This practice, known as economic coercion, allows Beijing to pressure countries, corporations, and even individuals into making decisions that align with its interests. By using trade restrictions, tariffs, boycotts, and other financial tools, China can retaliate against any entity that opposes its policies, particularly those related to sensitive issues like Taiwan, human rights, and territorial disputes. For smaller nations and corporations heavily dependent on the Chinese market, the threat of losing access to this economic powerhouse can have devastating consequences.

As one U.S. report noted, “The PRC has engaged in coercion through various outlets for decades to create pressure on trading partners, directly on foreign countries, on NGOs, and even private corporations.” This coercive strategy enables China to achieve its political goals while maintaining plausible deniability, making it difficult for individual nations or companies to push back without fear of economic consequences.

Methods of Economic Coercion

China employs several key tactics to exert its economic influence:

1. Trade Restrictions and Embargoes: One of China’s primary methods is the use of trade restrictions. By imposing tariffs or outright bans on imports and exports, China can punish countries that do not comply with its political demands. A well-known example is Australia, which faced punitive tariffs on its wine, barley, and coal exports after the Australian government called for an independent investigation into the origins of COVID-19. The result was billions of dollars in lost revenue for Australian industries, with wine exports to China dropping from $1.1 billion to just $12 million in 2021 alone.

Similarly, Lithuania experienced the wrath of Chinese trade sanctions when it upgraded its diplomatic relationship with Taiwan. China responded by blocking imports of Lithuanian meat, dairy, and other products, crippling industries that rely on access to the Chinese market. The Lithuanian economy, much smaller than Australia’s, suffered greatly, showing how effective this tactic can be against smaller nations.

2. Boycotts and Consumer Pressure: China has also used its massive domestic consumer base as a weapon. When South Korea agreed to install the U.S. Terminal High Altitude Area Defense (THAAD) missile system, China retaliated by encouraging boycotts of South Korean products. Major South Korean companies like Hyundai and Lotte saw their revenues plummet as Chinese consumers refused to buy their goods, and South Korean tourism was also heavily impacted. Similarly, in the wake of political tensions between China and Japan over the Senkaku Islands, anti-Japanese sentiment led to boycotts of Japanese products in China, particularly targeting the auto industry.
3. Investment Barriers and Corporate Pressure: China also wields significant power in the global investment and corporate sectors. It has delayed or blocked major mergers and acquisitions involving foreign companies as a way to exert political pressure. For instance, Chinese regulators complicated Nvidia’s acquisition of ARM, a key player in semiconductor technology, due to concerns over the deal’s impact on China’s access to advanced chips. The ability to manipulate investment flows and merger approvals gives Beijing another means of enforcing its will on global corporations.

As a memorandum to Congress noted, “China uses economic coercion to advance its economic and industrial goals and to set commercial terms, including forcing technology transfer, setting technology licensing terms, and advocating for its objectives through pressure on the domestic and foreign business communities.” This tactic is particularly effective with companies that depend heavily on the Chinese market, as they risk losing billions in revenue if they don’t comply with Beijing’s demands.

4. Tourism Restrictions: China has also used tourism as a tool of coercion. For example, after Taiwan elected a president who Beijing perceived as hostile to the idea of unification, China significantly reduced the number of Chinese tourists allowed to visit Taiwan. Given the importance of tourism to Taiwan’s economy, this move had a considerable impact on the island. China has used similar tactics against South Korea, Japan, and the Philippines, restricting Chinese citizens’ ability to travel to these countries to apply pressure on their governments.
5. Debt Diplomacy: Through its Belt and Road Initiative (BRI), China has extended loans to developing countries to fund infrastructure projects. While these loans provide much-needed financing, they often come with strings attached. Many countries, including Sri Lanka, Djibouti, and Pakistan, have found themselves heavily indebted to China, giving Beijing leverage over their political decisions. Sri Lanka, for instance, was forced to lease its strategic Hambantota port to a Chinese company for 99 years after it failed to repay its debt. This kind of “debt trap diplomacy” allows China to exert control over critical infrastructure in other countries while furthering its geopolitical interests.

Who Are the Victims?

China’s economic coercion tactics often target smaller nations and companies that are vulnerable to losing access to its vast market. Countries like Lithuania, Australia, and South Korea have all faced significant economic consequences for opposing China’s policies. However, even larger nations, including Japan, Canada, and the U.S., have been targeted when they’ve made political decisions that China deems unfavorable.

Corporate entities are frequent targets as well. Major international companies like Google, Apple, and even the NBA have faced pressure from Beijing to censor or alter their business practices to align with China’s interests. For instance, in 2019, the NBA faced a backlash from China after a team executive expressed support for pro-democracy protests in Hong Kong. China immediately canceled games and sponsorship deals, costing the league hundreds of millions in revenue.

According to Human Rights Watch, “PRC government pressure on U.S. companies appears to be affecting open and informed U.S. public discourse about U.S. concerns and policy options with regard to China by discouraging industry executives from speaking out about concerns.” The fear of losing access to the Chinese market has forced many companies to either stay silent or comply with Beijing’s demands, further solidifying China’s influence on the global economy.

Economic and Military Impact

The financial losses caused by China’s coercion are significant, particularly for smaller economies heavily reliant on trade with China. Lithuania’s export sector, for example, was severely impacted when China stopped accepting its goods. Australia lost billions in export revenue from its wine and coal industries. Even major companies like Apple and Google have faced steep financial costs when attempting to balance their global operations with Beijing’s demands.

Beyond the economic consequences, China’s coercive tactics also have implications for national security. As the dominant global supplier of rare earth elements, China has the ability to disrupt the production of essential electronics and military technology. During a 2010 territorial dispute with Japan over the Senkaku Islands, China restricted the export of rare earth minerals, demonstrating its willingness to use this leverage in geopolitical conflicts. This poses a significant risk for countries like the U.S., which depend on these materials for their defense industries.

Moreover, China’s economic coercion is part of a broader strategy to influence global power dynamics. By controlling critical infrastructure in strategically important locations, such as ports in Sri Lanka and Pakistan, China can project its military power more easily across the Indo-Pacific region.

How Can the U.S. Counter China’s Tactics?

Although China’s economic coercion is formidable, the U.S. and its allies are not without options. A strategic response can mitigate the damage and push back against China’s expanding influence. Here are several ways the U.S. can counter these tactics:

1. Diversifying Supply Chains: One of the most effective ways to weaken China’s leverage is to reduce dependence on its manufacturing base. U.S. companies can move production to countries like Vietnam, India, or Mexico. This will reduce China’s ability to threaten supply chain disruptions. As noted in the report, “For the American private sector, changing commercial suppliers to alternative partners in places like Mexico or Vietnam is often costly in the near term. But by and large, particularly for the types of goods that comprise the bulk of China’s exports to the U.S., the shift is much less detrimental for the buyer than it is for the original supplier.”
2. Building Strong Alliances: The U.S. can bolster its alliances with countries facing Chinese coercion. For example, Washington offered Lithuania both economic and diplomatic support when China targeted it for its ties to Taiwan. By working together, the U.S., Europe, Japan, and other allies can form a united front to resist China’s coercive tactics. Multilateral cooperation can also help to diversify global trade routes and limit China’s influence over critical supply chains.
3. Economic Retaliation: The U.S. has significant leverage over China, as it is one of Beijing’s largest trading partners. By limiting Chinese exports or restricting Chinese companies’ access to U.S. markets and technologies, Washington can impose costs on China for its coercive behavior. This kind of reciprocal action can deter future coercion by making it clear that China will face economic consequences for its actions.
4. Supporting Global Trade Norms: China’s coercive tactics often violate international trade laws. By using organizations like the World Trade Organization (WTO), the U.S. and its allies can challenge China’s actions and hold it accountable. While this approach takes time, it can help prevent Beijing from continuing to violate global trade rules without consequence.
5. Encouraging Economic Resilience: To counter China’s ability to weaponize trade, the U.S. can work with allies to build more resilient supply chains that are less vulnerable to Chinese pressure. This includes investing in domestic production of critical materials, like rare earth elements, and encouraging countries to reduce their reliance on Chinese infrastructure and investments.

China’s use of economic coercion is a powerful tool in its geopolitical strategy. Through trade restrictions, boycotts, and other financial pressures, Beijing has been able to push its political agenda, often at the expense of smaller nations and companies. However, by diversifying supply chains, building strong alliances, and using its own economic leverage, the U.S. can push back against these tactics and protect its interests and those of its allies.

These are the “above board” methods of economic coercion. Add to this worldwide propaganda campaigns, bullying of Taiwan and its neighbors, technology theft and coercion of its ex-patriate community and you will have a better picture. Economic coercion one piece of a larger war – emphasis on “war.”