China's Economic Coercion: Case Studies

1. Understanding Economic Coercion: The THAAD Dispute

To build a framework for our analysis, we will start with one of the most widely studied examples: China's response to South Korea's 2016 decision to deploy the US-made Terminal High Altitude Area Defense (THAAD) missile system. Beijing viewed THAAD's powerful radar as a threat to its own national security and launched a broad campaign of economic pressure to punish Seoul.

This case is invaluable because it reveals the different ways coercion can be applied and which sectors of an economy are most vulnerable.

As the article notes, China's retaliation was not a single, uniform action. The authors sort the coercive measures into three distinct categories based on the level of direct government involvement. This is a very useful analytical framework.

Let's examine these categories and see what they looked like in practice.

The THAAD case reveals a multi-pronged approach to coercion:

• Category 1: Direct and Coordinated State Action. This involved clear, top-down directives. The targeting of Lotte Group was surgical, as the company had provided the land for the THAAD system. State regulators used tools like "fire safety inspections" to shut down dozens of its supermarkets. Similarly, government agencies issued verbal instructions to travel agencies to halt group tours to South Korea and blocked the licensing of Korean cultural products. These were undeniable acts of state policy.

• Category 2: Plausibly Deniable State Action. Here, government action was likely but less overt. The exclusion of South Korean firms like LG and Samsung from EV battery subsidies is a key example. While Beijing never officially linked this to THAAD, the timing and context strongly suggest a connection, allowing China to inflict economic pain while maintaining a degree of plausible deniability. This often occurs in regulated industries where the state has discretionary power.

• Category 3: Popular Nationalism (Boycotts). State-run media fanned the flames of public anger, leading to consumer boycotts of visible South Korean brands like Hyundai cars and Amorepacific cosmetics. While the government didn't order these boycotts, it created the environment for them to flourish. This type of pressure is most effective against consumer-facing brands that are easily substitutable.

2. Australian Resilience and Vulnerability

A more recent case involves China's campaign of coercion against Australia, which began in 2020 after Australia called for an independent inquiry into the origins of Covid-19. This infuriated Beijing, which retaliated with what it called a "shadow trade war."

This case provides a powerful contrast, as it highlights not only a country's vulnerabilities but also its sources of resilience.

The central theme of the Australia case is the difference between dependence and interdependence. China targeted sectors where Australia was dependent on the Chinese market and alternatives were scarce, but it avoided sectors where China was equally or more dependent on Australian supply.

Let's look at two contrasting examples from the report.

The contrast is stark:

• Iron Ore (Interdependence): Australia supplies over 60% of China's iron ore imports, which are essential for its steel industry and massive construction sector. High-quality alternatives are not readily available in sufficient quantities. Brazil, the other major supplier, faces logistical and production constraints. Therefore, cutting off Australian iron ore would inflict severe self-harm on the Chinese economy. This is a classic case of interdependence, where both sides need each other, giving Australia leverage.

• Wine (Dependence): China had become the largest and most profitable market for Australian wine. However, for Chinese consumers, Australian wine is easily substitutable with wine from France, Chile, or other countries. By imposing tariffs of over 200%, Beijing could effectively close the market at a low cost to itself, while inflicting significant pain on Australian producers. This is a case of asymmetric dependence.

This pattern holds across the targeted sectors. Commodities like barley, beef, and lobsters, where alternatives were available to Chinese buyers, were hit hard. In contrast, LNG and wool, where Australia is a critical supplier with few substitutes, were largely untouched.

The chart below visualizes this logic. Consumer goods (like wine) are frequent targets of boycotts, while raw materials (like iron ore) are much less so.

Conclusion

The case studies of South Korea and Australia provide clear, practical examples of how China wields economic coercion. By analyzing them, we can derive several key principles about this form of statecraft.

The Asan Forum article concludes with an excellent summary of these principles.

Key Takeaways:

• Coercion is selective, not total. China does not simply cut off all trade. It targets specific sectors to maximize political pain on the target country while minimizing economic self-harm.
• Power comes from asymmetric interdependence. The key variable is substitutability. Sectors are vulnerable if the coercer (China) can easily find alternatives, while the target (e.g., Australia) cannot easily find alternative markets. Sectors are resilient when this interdependence is symmetric (e.g., iron ore).
• The tools of coercion vary. They range from direct, coordinated state actions (regulatory hurdles, licensing bans) to indirect methods like orchestrating popular boycotts against visible consumer brands.
• Plausible deniability is often a goal. By using opaque regulatory measures or blaming "the feelings of the Chinese people," Beijing attempts to inflict pain without technically violating WTO rules or other international agreements.
• Coercion can serve dual purposes. In some cases, punishing a country for a political decision can align with China's industrial policy goals of protecting and promoting its own domestic industries (e.g., EV batteries, auto manufacturing).

Preview of the Next Lesson:

China's use of economic coercion is a central element in its broader geopolitical rivalries. The Australian case, in particular, cannot be fully understood without considering the role of the United States. In our next lesson, we will begin the module on "Contemporary Great Power Relations" by focusing on the most important bilateral relationship of the 21st century, as we explain the shift in U.S.-China relations from engagement to strategic competition.