China plays the sanctions game, anticipating a bad US habit

Gary Clyde Hufbauer (PIIE) and Euijin Jung (PIIE)

December 14, 2020 12:00 PM
Image credit: 
Reuters/Stringer

President Donald Trump has been widely criticized by the trade community for using trade measures to achieve political ends. China, in fact, has been implementing such measures for years, even before Trump reached the White House. As the most recent example, on November 28, 2020, China announced antidumping duties of up to 212 percent on Australian wines—Beijing’s third wave of trade restrictions against Australia since Canberra requested an investigation into the origins of the novel coronavirus that causes COVID-19.

With these and other trade measures, China anticipated Trump’s bad habit: ignoring obligations committed in the World Trade Organization (WTO) and imposing tariffs that flatly violate the rulebook. President-elect Joe Biden, in an interview with New York Times columnist Tom Friedman, expressed concerns about China stealing intellectual property, dumping, illegal subsidies to corporations, and forced “tech transfers.” Biden should add China’s economic sanctions methods to his agenda.[1]

In 1954, Chairman Mao espoused non-interference in the affairs of other countries, announcing the “Five Principles of Peaceful Coexistence.” At that time and later, China was subject to Western sanctions. For example the United States, joined by allies, imposed a broad embargo on Chinese goods between 1947 and 1952. Experience on the receiving end of sanctions may have inspired Beijing’s non-interference doctrine, continued by Deng Xiaoping after Chairman Mao’s death.

But no more. Since Xi Jinping became general secretary in 2013, China has advanced territorial claims over the Senkaku/Diaoyutai Islands, the South China Sea, and the Indian and Bhutan borders with the Tibet autonomous region. Xi has added economic sanctions to China’s diplomatic toolbox as well.

Historically the United States imposed most sanctions using the Trading with the Enemy Act of 1917 or the International Emergency Economic Powers Act of 1977, statutes that clearly signaled foreign policy grievances. President Trump, however, obliterated the distinction between foreign policy sanctions and customary trade measures by using Section 232 of the Trade Expansion Act of 1962 and Section 301 the Trade Act of 1974 to restrict commerce for a murky combination of protective and sanction goals. Trump’s actions tore up US trade obligations, providing ample cover for China and other countries to ignore their WTO commitments. The Global Trade Alert reports the protectionist tide enabled by wayward behavior on the part of the United States, China, and other G20 countries.[2]

With less noise, Beijing anticipated Trump, using the cover of customary trade measures for its own foreign policy sanctions (see table below). China weaponized tariffs, restricted exports, discouraged its citizens from tourism, instigated public boycotts, and shut down foreign companies. When the Nobel Peace Prize was awarded to jailed political activist Liu Xiaobo, China restricted imports of Norwegian salmon. When South Korea installed its missile defense system in 2016, China discouraged tourism to South Korea, limited imports of Korean music and drama, and closed Korean retail stores in China. Earlier this year, China warned France over military sales to Taiwan.

Similar in style but amplified is the Australian episode. In May 2020, China banned beef imports from four Australia abattoirs and imposed 80 percent antidumping duties on Australian barley. In recent weeks China has raised trade barriers to 13 products that contribute over a third of Australia’s total exports to China, including wine, barley, beef, sugar, timber, lobsters, and copper ore. Relations between Australia and China worsened over China’s interference in Australian politics, Australia’s ban on Huawei 5G equipment, and Australia’s inquiry into China’s coronavirus response.

According to the Center for a New American Security, China has achieved success in eliciting statements of contrition or deference in exchange for easing or terminating coercive measures. To that degree, its sanctions have succeeded against smaller countries—Norway, the Philippines, South Korea, and Mongolia—reminiscent of US successes over many decades. Chinese sanctions against Taiwan and Australia remain question marks. However, Chinese sanctions have had no effect on Japanese or US policy, echoing US failures in sanctioning the USSR, Russia, and China.

China still has a long way to catch up with the case count of US sanctions. But as China expands its trade and financial footprint on the world economy, more frequent and stronger sanctions seem almost inevitable. Again, the parallel with US practice is unmistakable. Meanwhile, the manner in which China implements its foreign policy sanctions, just like Trump’s mixture of commercial and foreign policy restrictions, have done enormous harm to the fabric of international trade law.

Summary of China’s economic sanctions since 2010

 

Year

Target

Measures

Outcome

1

2010–12

Japan

When Japan and China disputed the Senkaku/Diaoyutai Islands in 2010, China imposed an export ban on rare earth minerals. When another territorial dispute occurred in 2012, China encouraged the boycott of Japanese products.

Japan filed a case against China in the WTO and won the case.

2

2010–16

Norway

After Norway awarded the 2010 Nobel Peace Prize to Chinese dissident Liu Xiaobo, Beijing cut off diplomatic relations and trade talks and used a series of sanitary and regulatory measures to significantly cut Norwegian salmon imports to China.

Norway reached a resolution with Beijing in 2016, acknowledging China’s “sovereignty” and “core interests” and admitted it had harmed “mutual trust.”

3

2012–16

Philippines

China and the Philippines clashed over the disputed Scarborough Shoal in the South China Sea. Restrictions on Chinese tourists to the Philippines and on banana imports from the Philippines were imposed.

Filipino president Rodrigo Duterte pursued conciliatory policy toward Beijing in late 2016, bringing the two countries closer.

4

2016

Taiwan

China cut off group tourism to Taiwan after the election of President Tsai Ing-wen and her pro-independence Democratic Progressive Party.

Taiwan succeeded in partially replacing lost Chinese tourists, primarily with visitors from Southeast Asia.

5

2016

Mongolia

In November 2016, the Dalai Lama visited Mongolia to hold public events. China responded by raising fees on Mongolian mining products, creating backups at a key border crossing, suspending bilateral relations including talks regarding a major loan.

The Mongolian government eventually offered a public apology to Beijing, including a promise not to host the Dalai Lama in the future.

6

2016–17

South Korea

As a response to South Korea’s deployment of the US Terminal High-Altitude Area Defense (THAAD) missile system to counter potential North Korean missile activity in 2016, Beijing curbed tourism, cut imports of cultural products such as cosmetics and popular music, and targeted auto companies. China also used regulatory measures to close almost 90 Korean-owned Lotte Mart stores in China.

Seoul relented in October 2017 by issuing a list of assurances, the so-called three no’s, meant to clarify to China that Seoul would not expand the scope of THAAD.

7

2018–

United States

When Trump imposed Section 301 and 232 tariffs on Chinese goods, China retaliated with its own import tariffs on US exports.

Despite the phase one deal, both countries still maintain tariffs on imports from the other country.

8

2019–20

NBA

China suspended broadcasts of National Basketball Association (NBA) games in 2019 after a team official criticized China’s policy in Hong Kong.

In October 2020, China resumed the broadcast of NBA games.

9

2019–

Canada

When Canada detained Huawei executive Meng Wanzhou in Vancouver, China blocked canola imports from Canada after detecting harmful pests in one shipment in March 2019.

Canola shipments to China remain blocked as the licenses of two large exporters, Richardson and Viterra, to export canola seed to China remain suspended.

10

2020–

Australia

Australia's inquiry for investigating the Chinese response to the coronavirus outbreak, and its ban on Huawei from the rollout of 5G telecom infrastructure, prompted China to impose tariffs on barley, wine, and other goods imported from Australia, and suspend imports of Australian beef and coal.

Ongoing

11

2020–

France

China warned France over military aircraft sale to Taiwan as part of an upgrade to the warship bought 30 years ago in May 2020. But there has been no action against France.

Ongoing

Source: Center for a New American Security report and author’s research.

 

Notes

1. Biden revealed that his trade policy would be China-focused by nominating Katherine Tai as US Trade Representative (USTR). Tai successfully worked China cases in the World Trade Organization in her previous stint at USTR.

2. The members of the G20 are Argentina, Australia, Brazil, Canada, China, the European Union, France, Germany, India, Indonesia, Italy, Japan, South Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, the United Kingdom, and the United States.

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Gary Clyde Hufbauer Senior Research Staff
Euijin Jung Former Research Staff

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