Source: “Dark ‘n Stormy: Rum Cake ft. Ginger-Rum Glaze + Ginger Frosting + Pineapple-Lime Salsa” by michelle.schrank
The opening shots in a Taiwanese trade response to Chinese economic coercion appear to be filled with Lithuanian rum. The Taiwanese National Development Council recently posted on Facebook recipes for “dark ‘n’ stormy” cocktails, French toast, and steak, among other items in an effort to promote consumption of the 20,400 bottles of rum diverted to Taiwan. The large shipment was purchased by the country’s state-owned Taiwan Tobacco and Liquor (TTL) company. While Taiwan’s decision does encourage citizens to try fun new cocktails and recipes, it appears to be primarily a strategy to offset risks for friends and partners in international trade.
The rum, along with other goods, was to be imported to China from Lithuania until tensions soured over a diplomatic dispute. In August of 2021, Lithuania and China saw a sharp decline in relations, as Lithuanian officials announced the opening of a Taiwanese Representative’s Office, a de facto embassy in the capital of Vilnius. While Taiwan has a network of representatives in many other countries, most operate under Taiwan’s official name, the Republic of China. To Beijing, the use of “Taiwanese” in the name of the office sounded too much like diplomatic recognition of an independent Taiwan. In response, China recalled its ambassador in Vilnius and told Lithuania to pull its ambassador to Beijing. China then imposed a boycott on Lithuania, removing the country from its approved imports list, effectively banning imports from the Baltic country. Lithuanian trade has suffered significantly. Lithuania has remained relatively firm in its stance, despite some vacillation and regrets over the name of the office.
China’s Trade Coercion, and Global Reactions
Boycotts like the one on Lithuanian rum are not particularly uncommon in Chinese economic statecraft. Economic coercion, and trade boycotts in particular have been applied as sanctions in response to a variety of perceived insults by other countries. In a similar incident in late 2020, China imposed tariffs as high as 218% on Australian wine in retaliation for Prime Minister Scott Morrison’s calls for an international inquiry into the origins of the SARS-CoV-2 virus. In 2011, the awarding of a Nobel prize to dissident Liu Xiaobo prompted an effective ban on Norwegian salmon imports. In 2016, China hiked tariffs for imports of minerals from Mongolia in response to a visit by the Dalai Lama to that country. In 2017, China responded to the installation of a US made missile defense system in South Korea with boycotts on Korean cultural products and stores.
In light of incidents like these, Western policymakers have advocated a system of trade alliances to offset the impacts of economic coercion. While Lithuania, Australia, and others have sought remedy from the World Trade Organization, the WTO process of dispute adjudication can be very slow, leaving smaller countries with short term losses. In response, scholars have proposed a so-called “NATO-for-Trade.” Under this system, states would act collectively not only within the WTO dispute resolution process, but outside of it as well, to retaliate against trade coercion or to offset economic risk to small countries with direct purchases of boycotted goods.
Just as NATO was founded to counter Soviet coercive military power, proposals for “NATO-for-Trade” aim at Chinese coercive economic power. At the center of these arguments is the assumption that if countries expect economic punishment for disputes with China, they will hesitate or even undertake proactive self-censorship to avoid risking any diplomatic faux pas with the economic giant. With a system of trade alliances in place, this risk could be mitigated, and countries would be more willing to criticize trade aggressors.
While Western policymakers have long advocated trade-based alliance networks, Taiwan’s willingness to act at large scale is a major development. The TTL made the purchase to directly blunt the impact of Chinese trade restrictions on Lithuania’s much smaller economy. In acting to directly purchase the shipment of Lithuanian rum, Taipei indicated that it would help mitigate the economic consequences of Chinese retaliation against partners for engaging with Taiwan. If Taiwan were to allow such sanctions to significantly harm countries willing to extend a diplomatic hand, it could soon find itself without friends. For a state lacking widespread diplomatic recognition or a seat at the United Nations, this is a particularly important concern, and one worth paying for.
Taiwan is not alone in seeking to implement some version of a trade alliance to offset Chinese economic coercion. France recently proposed a similar EU-wide measure to protect member states from outside countries. According to this proposal, the European Union would lower the barrier to unified action by allowing the European Commission to impose sanctions on non-member states with majority consent. Currently, such actions require unanimous consent from the bloc’s individual members. As a decentralized polity and a common market, the European Union has significant interest in avoiding trade coercion against individual member states and in preventing negative economic spillover from interconnected supply chains. While waiting on the implementation of this new policy, the EU recently filed a WTO dispute on Lithuania’s behalf. In fact, the United States proposed its own bilateral trade agreement to offset damage to the Lithuanian economy.
What This Means for Global Trade
The implications of Taiwan’s purchase of Lithuanian rum in the face of Chinese economic coercion are quite significant for the international trade ecosystem. This growing trend of trade solidarity between countries targeted by Chinese economic coercion means that the risk to individual countries of criticism of China may be blunted going forward. Trade alliances like the EU plan, and the bilateral move by Taiwan have the potential to shift the calculus a state must undertake when considering whether to crack down on speech or other domestic activity related to China.
There is no guarantee, however, that trade alliances will succeed in their goal of altering Chinese behavior. While Chinese trade coercion has contributed to a decline in favorability of China overseas, it is not designed for a foreign audience, rather a domestic one. When facing perceived insults from foreign countries, the CCP faces enormous pressure to act aggressively in retaliation, or risk losing domestic support. Beijing needs to be seen taking harsh actions, so if trade alliances render trade coercion ineffective, the type of retaliation may change but it is very unlikely to go away.
One impact that trade solidarity and trade alliances are likely to have is the hastening of economic decoupling between China and the West, splitting much of the world economy into antagonistic, competing trade blocs. It also sends a signal that the WTO is losing its centrality in the global trade ecosystem. Already facing systemic challenges like the failure of the Doha round of negotiations, and the Sino-American trade war, the WTO is poorly positioned to adjudicate and issue settlements against China for trade coercion. As states form external blocs to remedy trade abuses, the likelihood of addressing them through the WTO diminishes.
