Counter Chinese Bullying With an ‘Economic Article 5’

What do Lithuanian beer, Australian wine, and Taiwanese pineapple have in common? You will struggle to find any of them in a Chinese supermarket. They are among the thousands of foreign products Beijing has effectively banned in recent years in retaliation for decisions it viewed as hostile to its interests.

As China’s wealth has grown, so has its willingness to use economic bullying to achieve its foreign-policy goals. When Australian politicians called for an investigation into the origins of the COVID-19 outbreak in China, Beijing responded by slapping tariffs of more than 100 percent on Australian wines. Unsurprisingly, Australian wine exports to China collapsed, from $870 million in 2020 to just $8.3 million in 2022. The consequences for Lithuania were even starker when it allowed a Taiwanese representative office to be set up in Vilnius. In response, China launched an effective embargo on the entire Baltic state. This had significant knock-on effects on the European Union’s single market, with China also pressuring European companies to remove Lithuanian products from their supply chains.

Beijing is running a play from a well-worn autocrat’s playbook. Russia, too, has long used economic blackmail to keep its neighbors locked into its sphere of influence. Following the February 2022 invasion of Ukraine, Russian President Vladimir Putin believed such blackmail would work again. He thought that the threat of energy shortages would lead to a weak and divided response from Europe, but he was wrong. Europe and the wider democratic world instead responded with remarkable unity, both in their support for Ukraine and by quickly diversifying from Russian oil and gas.

A similarly unified response could be even more effective with China, which relies on access to the democracies’ markets and technology to fuel its growth. In international affairs, Beijing acts like a classic bully, seeking to isolate smaller countries and pick them off one by one. It would not dare try the same approach when faced with the combined economic might of the democratic world, which still accounts for more than 60 percent of global GDP. This is why the world’s democracies need to stand together.

NATO is the world’s most powerful military alliance because its adversaries know that an attack on any member will be met with a response by all, as Article 5 of NATO’s founding treaty makes clear. It is time to apply the same approach to economic coercion. It is time for an economic version of NATO’s Article 5.

This is an idea my foundation, the Alliance of Democracies, has been developing. The concept is simple: Any democracy threatened by economic coercion from an autocracy could invoke the new economic article 5 to receive a unified response from fellow democracies.

To work, this will need to pack a punch. When triggered, democracies would convene and decide on a tough but proportionate response. This would go beyond words of condemnation and include a set of retaliatory trade measures, such as sanctions or import tariffs.

An economic article 5 would also need to include support for any democracy or company targeted by an autocratic regime. It would include a financial instrument to cushion the blow on industries directly affected by aggressive trade measures. Democratic governments would support each other in helping provide alternative markets for products hit by import bans or excessive taxes.

This approach has already proved effective. When China banned the import of Lithuanian products in 2020, it looked like a disaster for Volfas Engelman, a Lithuanian beer maker. But just as orders from China dried up, those from Taiwan exploded. In 2021, the brewery exported around 180,000 liters of beer to Taiwan, 23 times more than in 2020. Under an economic article 5, this kind of compensatory trade among free nations could be done at scale. It would remove the sting of threats from dictatorships.

Just as with NATO’s Article 5, the mere existence of such an instrument would act as a powerful deterrent. China would be far less willing to strike Lithuania or Australia with aggressive trade measures if it knew the entire democratic world would strike back.

More and more countries and regions are waking up to the need to counter China’s economic bullying. The European Union has developed an anti-coercion instrument that gives it the power to retaliate with trade, investment, and funding measures if one of its member states is targeted. Last year, Japan adopted an Economic Security Promotion Act to protect itself from coercion based on economic dependency. Australia and Britain have kick-started an economic security dialogue. Most recently, a group of U.S. Congress members introduced a bill that would give the U.S. government new tools to help U.S. allies facing economic coercion from China. Individually, these are all useful initiatives. However, a collective approach would create a far stronger deterrent and pack a far greater punch when needed.

When U.S. President Joe Biden’s Summit for Democracy convenes for the second time this week, leaders from across the democratic world will discuss ways to strengthen democracy and push back against increasingly aggressive autocracies. A commitment to create an economic article 5 would be a clear and practical summit outcome. More importantly, it would add a potent new weapon to the democracies’ arsenal.