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Trade Weaponization and China

Using trade as a weapon is not a new tactic for countries wishing to cause economic losses to their opponents. Furthermore, the practice has become increasingly apparent today, as we have seen with the rise of production in China.

A recent report issued by Columbia University’s School of International and Public Affairs in 2020 defines trade weaponization as “the employment of trade tools to induce a trade partner to change its practices in any issue-area (including economic policy and diplomatic relations); by exploiting its economic vulnerabilities.”

In short, a country like China, with its vast market, could place significant tariffs on another country’s imported products causing it to suffer substantial economic difficulties—as we have seen with Australia recently. 

Australia used to be a top supplier to China for imports of iron ore and metallurgical coal. Yet, as trade tensions between the two countries increased, coal became a banned item even as it meant power shortages during China’s winter.

China accounted for 40% of Australia’s total wine exports, but tariffs of 212% were slapped on the product, and China increasingly looked to South Africa to source its wines. China’s growing trend with autocratic regimes over democratic governments is increasing. There is a preference for working with constant partners rather than changing according to a democratically elected administration. We can see this preference with China’s trade relationship with Pakistan over India.

China’s trade relations with Asia

Over the years, China has always used trade weaponization against countries like Japan and Mongolia as acts of retaliation. In 2010 China blocked exports of rare earths to Japan because of diplomatic disputes over the Senkaku Islands. In 2016, Mongolia hosted Tibetan Spiritual leader the Dalai Lama and was faced with punitive fees on their commodity exports.

India faces a trade imbalance with China as it imports much more than it exports to the country. Efforts to alleviate the imbalance have been proposed but not implemented well, as agreements to import India’s pharmaceutical products, oilseeds, IT services, and non-basmati rice have met with administrative roadblocks that slow down or completely halt the imports into China. In the recent case with Taiwan, pineapple imports to the mainland were halted as China asserted the crop contained pests.

China flexed its military muscle against the island by sending warplanes and increased its messaging that the island is under its leadership. Fortuitously, Taiwan consumes most of the pineapples grown domestically, and a media push to support the pineapple industry resulted in residents eating more in a show of support. Even neighboring islands to the north, Japan, increased their fruit orders after China’s temporary ban. 

Containers at a Sea Port in Panama. Image: flickr/ CC0.2.0

At the heart of the issue was the safety of the items produced and increasing dependence on China to produce either the finished items or active pharmaceutical ingredients. The U.S. Commerce Department calculated that China accounted for over 90% of the imported ibuprofen and hydrocortisone. Also, 70% of acetaminophen, 40-45% of penicillin, and 40% of heparin imports are manufactured in China.  

Without enough FDA officials in China to inspect and oversee quality control a significant risk of contamination of goods may develop that might endanger American citizens’ lives. In addition to the products’ safety comes a trade imbalance that may be used as a weapon against the American public’s well-being.

In March of 2019, a Chinese economic professor’s statement indicating China’s position as the largest exporter of U.S. consumed pharmaceutical products exposed potential vulnerabilities to be used against Americans. Professor Li Daokui stated at the Chinese People’s Political Consultative Conference, “We are at the mercy of others when it comes to computer chips, but we are the world’s largest exporter of raw materials for vitamins and antibiotics…Should we reduce the exports, the medical systems of some western countries will not run well.”

Following Daokui’s statements, the covid-19 pandemic gripped the world in uncertainty as many countries locked down while imports and exports of items came to a halt. The lack of medical equipment and PPEs highlighted a dangerous supply chain situation that relies heavily on China.

The pandemic has emphasized the need to source pharma products close to home in a move that could hopefully lean towards reshoring or onshoring goods.

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  • Debbie has worked in corporate accounting and holds degrees in the social sciences and financial economics. She writes on topics regarding China and finance which brings together her educational and work interests.

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