7 leaders are taking steps to protect vulnerable markets and de-risk supply chains from a growing wave of new threats amid escalating geopolitical tensions and shifting power dynamics. Announcements of a Coordination Platform on Economic Coercion and other measures accompany an alarming body of evidence about economic coercion methods that are providing subtle and potent ways for countries, especially authoritarian regimes, to gain influence over trading partners.
From trade limitations to debt traps and cyberattacks, China and Russia are among the countries utilizing various tactics to undermine democracies and assert their influence on the world stage. Compelling new reports detail the numerous forms economic coercion can take and how targeted countries are impacted, as well as potential ways to counter the efforts. Many experts assert that increased private sector involvement will be essential to effective policymaking around economic resilience and security matters in the future.
Understanding Economic Coercion
Economic coercion tactics typically involve circumventing legal norms and should not be confused with traditional sanctions, which adhere to rule of law, are clearly defined, and identify mechanisms for both enforcement and legal recourse. In the case of China, research shows that frequent ploys include the sudden enforcement of “non-market” policies, forced technology transfers, or application of pressure via indirect supply chain relationships. With no legal recourse available, businesses and governments alike find themselves at the mercy of coercive actions.
In some recent examples, China has imposed a variety of trade restrictions on Australia and other countries over COVID-19-related matters and human rights issues. Meanwhile, Russia has repeatedly cut off gas supplies to European countries that do not support its war against Ukraine.
Some experts also flag that the current strategies of China and Russia also reflect a history of strategic cooperation between the two regimes that must be examined, as this has included supporting each other's coercive actions against democracies, such as by vetoing United Nations resolutions or providing alternative markets and suppliers. The two countries recently affirmed their economic cooperation for the next several years, with an emphasis on increasing the use of local currency and expanding bilateral trade and investment.
These examples and developments underscore the urgent need for democratic societies to collaboratively devise robust strategies for countering economic coercion. Through policies that promote economic resilience, solidarity, and openness, democracies can decrease their reliance on authoritarian regimes and bolster their capacity to resist economic coercion, as well as widen opportunity for all citizens.
Coordinated Threats Require Coordinated Responses
As part of their efforts to band together, democracies should continue to seek new ways to develop effective risk management, risk avoidance, and risk mitigation strategies. Arriving at the best possible set of policies will require not only concerted action between governments and with business sector engagement to counter these threats and ensure a future of economic cooperation rooted in shared democratic values.
Strategies should include:
- Strengthening economic resilience by diversifying sources of supply and demand, investing in critical infrastructure and technology, enhancing domestic production, and building strategic stockpiles of essential goods.
- Enhancing economic solidarity by coordinating policies and actions among like-minded partners, establishing common standards and rules for trade and investment, creating mechanisms for collective response and deterrence against coercion, and providing support to vulnerable allies.
- Promoting economic openness by expanding market access and opportunities for democratic countries, advancing free trade agreements that support multilateral institutions, and engaging constructively with emerging economies.
Some of these activities are already happening, including at the regional and local level. The European Union has taken steps in this direction by implementing anti-coercion instruments and critical raw materials acts that aim to protect European businesses and supply chains from foreign interference and disruption. Similarly, the U.S. has subsidized semiconductor investments and sought to bring supply chains closer to home to boost domestic production and innovation in key sectors. Meanwhile, many business associations and chambers are beginning to gather information and position themselves to provide input on impactful matters such as investment screening mechanisms and digital economy issues.
At the global level, G7 leaders indicate they are committed to developing stronger international rules and norms, as well as efforts to deepen cooperation and information sharing with a wider range of public and private stakeholders. The newly announced G7 Coordination Platform on Economic Coercion will include some form of an early warning system and rapid information sharing techniques, as well periodic consultations or assessments, as well as the possibility of coordinated responses to some situations.
Incorporating the Voice of Business
In the meantime, more can be done at the country level to address the problem of economic coercion. Governments should work more closely with businesses by sharing better data and developing more proactive policy tools. Businesses must be more aware of the political risks and the implications of their economic activities, especially in authoritarian markets, and also be more involved in policy advocacy to ensure private sector input is received. Associations and other business advocacy groups may be instrumental in this process.
As democracies consider coordinated responses and shows of solidarity or mutual support to targeted countries, other actions may include imposing costs on coercive actors and offering alternative sources of trade and investment. Additionally, countries must promote a positive vision of economic cooperation based on shared values and principles, such as openness, fairness, sustainability, and inclusiveness.
U.S. President Biden emphasized in a June 2021 NATO speech that economic coercion does not just impact economic security, but also national security. Two years later his quote is as relevant today as it was then. Democracies must work closely with businesses to build resilience against authoritarian encroachment, offering better alternatives for economic cooperation that benefits all.
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Democracies Must Band Together Against Rising Economic Coercion
June 1, 2023
Autocracies that want to extend their influence have a powerful new tool in their arsenal—economic coercion. As the prevalence and coordination of economic coercion morphs into a strategic threat, democracies must cooperate to counter it, writes CIPE Executive Director Andrew Wilson.
G
7 leaders are taking steps to protect vulnerable markets and de-risk supply chains from a growing wave of new threats amid escalating geopolitical tensions and shifting power dynamics. Announcements of a Coordination Platform on Economic Coercion and other measures accompany an alarming body of evidence about economic coercion methods that are providing subtle and potent ways for countries, especially authoritarian regimes, to gain influence over trading partners.
From trade limitations to debt traps and cyberattacks, China and Russia are among the countries utilizing various tactics to undermine democracies and assert their influence on the world stage. Compelling new reports detail the numerous forms economic coercion can take and how targeted countries are impacted, as well as potential ways to counter the efforts. Many experts assert that increased private sector involvement will be essential to effective policymaking around economic resilience and security matters in the future.
Understanding Economic Coercion
Economic coercion tactics typically involve circumventing legal norms and should not be confused with traditional sanctions, which adhere to rule of law, are clearly defined, and identify mechanisms for both enforcement and legal recourse. In the case of China, research shows that frequent ploys include the sudden enforcement of “non-market” policies, forced technology transfers, or application of pressure via indirect supply chain relationships. With no legal recourse available, businesses and governments alike find themselves at the mercy of coercive actions.
In some recent examples, China has imposed a variety of trade restrictions on Australia and other countries over COVID-19-related matters and human rights issues. Meanwhile, Russia has repeatedly cut off gas supplies to European countries that do not support its war against Ukraine.
Some experts also flag that the current strategies of China and Russia also reflect a history of strategic cooperation between the two regimes that must be examined, as this has included supporting each other's coercive actions against democracies, such as by vetoing United Nations resolutions or providing alternative markets and suppliers. The two countries recently affirmed their economic cooperation for the next several years, with an emphasis on increasing the use of local currency and expanding bilateral trade and investment.
These examples and developments underscore the urgent need for democratic societies to collaboratively devise robust strategies for countering economic coercion. Through policies that promote economic resilience, solidarity, and openness, democracies can decrease their reliance on authoritarian regimes and bolster their capacity to resist economic coercion, as well as widen opportunity for all citizens.
Coordinated Threats Require Coordinated Responses
As part of their efforts to band together, democracies should continue to seek new ways to develop effective risk management, risk avoidance, and risk mitigation strategies. Arriving at the best possible set of policies will require not only concerted action between governments and with business sector engagement to counter these threats and ensure a future of economic cooperation rooted in shared democratic values.
Strategies should include:
- Strengthening economic resilience by diversifying sources of supply and demand, investing in critical infrastructure and technology, enhancing domestic production, and building strategic stockpiles of essential goods.
- Enhancing economic solidarity by coordinating policies and actions among like-minded partners, establishing common standards and rules for trade and investment, creating mechanisms for collective response and deterrence against coercion, and providing support to vulnerable allies.
- Promoting economic openness by expanding market access and opportunities for democratic countries, advancing free trade agreements that support multilateral institutions, and engaging constructively with emerging economies.
Some of these activities are already happening, including at the regional and local level. The European Union has taken steps in this direction by implementing anti-coercion instruments and critical raw materials acts that aim to protect European businesses and supply chains from foreign interference and disruption. Similarly, the U.S. has subsidized semiconductor investments and sought to bring supply chains closer to home to boost domestic production and innovation in key sectors. Meanwhile, many business associations and chambers are beginning to gather information and position themselves to provide input on impactful matters such as investment screening mechanisms and digital economy issues.
At the global level, G7 leaders indicate they are committed to developing stronger international rules and norms, as well as efforts to deepen cooperation and information sharing with a wider range of public and private stakeholders. The newly announced G7 Coordination Platform on Economic Coercion will include some form of an early warning system and rapid information sharing techniques, as well periodic consultations or assessments, as well as the possibility of coordinated responses to some situations.
Incorporating the Voice of Business
In the meantime, more can be done at the country level to address the problem of economic coercion. Governments should work more closely with businesses by sharing better data and developing more proactive policy tools. Businesses must be more aware of the political risks and the implications of their economic activities, especially in authoritarian markets, and also be more involved in policy advocacy to ensure private sector input is received. Associations and other business advocacy groups may be instrumental in this process.
As democracies consider coordinated responses and shows of solidarity or mutual support to targeted countries, other actions may include imposing costs on coercive actors and offering alternative sources of trade and investment. Additionally, countries must promote a positive vision of economic cooperation based on shared values and principles, such as openness, fairness, sustainability, and inclusiveness.
U.S. President Biden emphasized in a June 2021 NATO speech that economic coercion does not just impact economic security, but also national security. Two years later his quote is as relevant today as it was then. Democracies must work closely with businesses to build resilience against authoritarian encroachment, offering better alternatives for economic cooperation that benefits all.
