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Economic Coercion Against US Interests.

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The mission of the CNAS is to develop strong, pragmatic and principled national security and defense policies. A key part of its mission is to inform and prepare the national security leaders of today and tomorrow.

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Diminishing Returns ? The Future of Economic Coercion. 2015/11






Other countries have gone to school on the impressive record of US economic statecraft, and policymakers must be prepared for the United States and its allies to be on the receiving end of economic coercion.

China, in particular, can be expected to play the game of economic statecraft. However, its strategy is unlikely to mimic exactly what the United States has done with financial sanctions against targets such as Iran.

First, for the same reasons that US financial sanctions against China would be extremely painful to the US economy, Chinese financial sanctions against the United States would hurt China too. As analysts have noted over the years, this mutual economic dependency may limit the countries’ willingness to use economic weapons against each other.

Second, China has historically adopted a less aggressive form of economic statecraft than the US. Instead of applying blanket sanctions against target states to coerce changes in their behavior, the Chinese have relied on exerting economic pressure by restricting imports from key foreign industries and by refusing to allow certain companies to secure Chinese government contracts.

China creates coercive leverage with regulations, purchasing decisions, the refusal to allow the import of certain goods into Chinese markets, and limiting exports of strategic materials to the markets of its adversaries.

Moreover, given the importance of China as a market, these coercive measures may also have reputational effects not unlike those that operate with the financial levers the US and its Western allies have utilized – states and firms may not want the stigma associated with being locked out or otherwise sanctioned by such a major economic market player as China.

Notable examples of this willingness to use economic power for political ends are China’s recent attempts to coerce a number of countries in East Asia.

For instance, in 2010, following the arrest of a Chinese ship captain after he rammed a Japanese Coast Guard vessel in a disputed maritime region, the Chinese restricted exports to Japan of rare earth elements (essential to many high-tech industries).

Chinese customs officials blocked the export of these strategic goods to Japan until it released the captain.