A few years ago, Lithuania allowed Taiwan to open a representative office in its capital. Importantly, the office was called the Taiwanese Representative Office instead of Taipei. That move angered China, which views Taiwan as its own territory. In response, Beijing deployed drastic economic moves aimed at hurting the Baltic nation. It’s this type of economic coercion that’s on a lot of leaders’ minds heading into the G-7 summit that starts on Friday.

Earlier in the week, U.S. ambassador to Japan, Rahm Emanuel, said the G-7 summit will bring concrete moves to address economic bullying. “Expect more than words and communiques on economic coercion — expect action,” Emanuel said in a tweet.

But the pathway to combat coercion is complicated to say the least. Marketplace’s Sabri Ben-Achour spoke with U.S. Trade Representative Katherine Tai about this growing problem.

The following is an edited transcript of their conversation.

Sabri Ben-Achour: There’s this term, it keeps coming up. The U.S., Europe, Japan, they’ve all talked about economic coercion as something they need to get together and deal with, particularly at the G-7. What is economic coercion? What’s like a real example we could look at?

Katherine Tai: I think this is a great question. Because you’re right, we do you talk a lot about economic coercion, we work on this issue, it’s a real challenge. But I appreciate that, for us it’s really become a term of art. So we just say it and understand what we mean. If I break it down for just the ordinary person, when we talk about economic coercion and the need to counteract it — economic coercion really means economic bullying in the global marketplace. One of the first examples of economic coercion that we saw was way back in 2010. A Chinese fishing vessel came in contact with and collided with two Japanese Coast Guard boats off the coast of Japan and some disputed islands. And the Japanese Coast Guard took the fishing boat captain into custody. In response, the Chinese government effectively banned the exports of rare earths, all rare earths, to Japan for a period of time. So that’s one example. Something happened where a government was operating in its sovereign capacity, it was not in line with what the Chinese government wanted to see and [a] very, very drastic economic measure was taken in response.

Ben-Achour: Is there a risk that this kind of activity, this kind of economic bullying, could affect U.S. companies, U.S. people, like everyday people?

Tai: Certainly. I think that for the U.S., we’re in a slightly different position, because we are such a large economy, we’re still the largest economy in the world. And so when the bullying is directed towards us, it’s not as coercive. I think that smaller countries, smaller economies are much more vulnerable to the bullying because they’re much more easily significantly impacted. But even so, you have seen in the past that the Chinese government in Beijing has responded to actions that the United States has taken by, for instance, targeting U.S. agricultural exports to China. So certainly we have experienced our share of punishment, if you will, for things we’ve done that Beijing has not liked.

Ben-Achour: So how do you deal with that? What are the ways that the U.S. and our allies are exploring to address this?

Tai: Well, certainly one of the challenges is that the Chinese economy is very, very large. And it has a huge footprint in international trade. China not only exports a lot to the rest of the world, but it also imports a lot from us. And when you take say the commodities trade, where you’re talking about goods that are pretty fungible, when a very large economy like China’s decides to turn off the spigot for you it has a lot of other options to source from. And that’s one of the reasons why we see the solidarity, this standing up together working on economic coercion together with our partners as being so important. It’s really to prevent us from being picked off, one from each other, and also to prevent us from being pitted against each other.

Ben-Achour: I mean, China would say, has said, that the U.S. is the one doing the economic coercion. Whether it’s we pushed hard to prevent underwater cables from being built by Chinese companies, or, you know, we have these electric vehicle subsidies that angered even our allies. How are we different?

Tai: Well, we have a very transparent system. And I think what I would like to highlight is, you know, maybe one question would be when we impose economic sanctions like we have on Russia, they are designed to punish the Russians and to induce the Russians to stop their invasion of Ukraine, right? But the distinctions are, first of all, that we are of the view that the Russian invasion of Ukraine is a violation of international law and norms. And that the measures that we have taken in response, which are economic in nature they’re are economic sanctions measures, by the way that we have taken in combination with the Europeans and others of our partners, are undertaken in, again, a transparent way under a legal framework that is allowed for by international trade and international law rules.

What about the World Trade Organization?

Ben-Achour: You know, speaking of working together, for a while we lived in a world where the WTO [World Trade Organization] could settle these kinds of disputes. And I know the U.S. and Europe and Japan all say they support WTO principles, but right now the WTO is kind of dead. So do we just now live in a world where it’s just every country for themselves?

Tai: So let me take that question on in a number of ways. One is we’re pushing back on economic coercion and this form of bullying precisely because we do not believe in a world order where it’s every country for themselves and where might makes right – where the biggest economy can have its way by throwing its weight around. Second, I would say that the WTO is not dead, it is very much alive. And I will tell you that because so much of our work here at the U.S. Trade Representative’s Office is focused on agendas at the WTO. The WTO is tremendously important. We are committed to the success of the WTO, while recognizing that there are important parts of the WTO that need to be reformed, to keep it relevant to the economy that we have today in the world. And finally, what I would say is, with respect to these forms of economic coercion that we have seen, part of the challenge that we have is because they’re not done in a transparent way, because they are not identifiable quite often as a measure that is taken in response to a political action, they are nearly impossible to challenge at the WTO as such. When you bring a WTO dispute, you have to be able to point to an action, a measure, a legal framework to say that, you know, this punishment has been taken in response to this, you know, legitimate action. And in the case of the economic coercive practices that we have seen from the PRC [People’s Republic of China] government in Beijing, it is impossible to document that they have taken the measure. A lot of these import bans are effectuated not by a rule or regulation that is put out there to say no more inputs. But suddenly, if you’re Lithuania, for instance, one day, you discover that all of the goods that are coming from your country are just stopped at the border. And when you ask why they’re not moving, maybe you get a response like, ‘Well, we have concerns about the safety, you need extra inspections.’ So you’ll see that the European Union has actually taken a dispute to the WTO, challenging China’s refusal to accept imports from Lithuania. But the challenge there is that there’s an amorphous measure, there’s just, you know, a de facto action for the EU to complain about and that is a very difficult case to prove within the WTO system.

Ben-Achour: So just to circle back to how we deal with this phenomenon of economic coercion. What are some of the tools that you are exploring to handle economic bullying?

Tai: Well, first of all, we’re working with a lot of our partners bilaterally to share our experiences to put together the data that we’ve collected in terms of the challenge of this type of economic pressure campaign. So we have discussed the issues with our partners in Canberra, that’s Australia, with Japan, with the U.K., certainly with Lithuania, when it was going through the worst of the coercion, with Germany and with the EU more broadly. You’ll see that in the readout, the joint statement, sorry, from President Biden and President von der Leyen’s meetings, that they have taken up the issue of economic coercion. Obviously, we’re also addressing this issue through the WTO, which is very much relevant to the rules based order that we support. We are participating as a third party in the Lithuania versus China dispute along with Japan, Canada, Australia, Taiwan, Korea and other WTO members. In the G-7 as well, you’ll see in the leaders work among the trade ministers and foreign ministers that economic coercion is coming up in a lot of our conversations. And also in the U.S., EU Trade and Technology Council this is also an area of focus for us.

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