Anthony W. Holmes was special adviser for North Korea in the Office of the Secretary of Defense from 2017-2021. During that time, Holmes led the Department of Defense team designing the Maximum Pressure Campaign and was one of only two DOD representatives at the inaugural U.S.-North Korea summit in Singapore.
On Sept. 21, 2010, China suspended exports of rare earth materials to Japan in retaliation for the arrest of a Chinese fishing boat captain who rammed Japan Coast Guard vessels around the Senkaku Islands 11 days earlier. At the time, China had a near-monopoly on these metals critical to Japan's high-tech economy. Two days later, China arrested four Japanese nationals in Shijiazhuang on spying charges.
In July 2016, Washington and Seoul agreed to place a U.S. Terminal High-Altitude Area Defense system in South Korea to protect against the North Korean missile threat. Using its power as South Korea's largest trading partner, Beijing enacted punishing retaliation. Chinese tourism to South Korea dropped 66% in one year. Lotte, the Korean conglomerate that sold the land for THAAD to the government, saw China close its stores, ban its products, and harass its people. Korean products disappeared from Chinese shelves.
After Canberra joined international calls to investigate COVID-19's origins and supported democracy in Hong Kong, China imposed more than 200% duties on Australian wine, urged its subjects not to travel to Australia, and detained, harassed, and arrested Australian citizens. There are more examples. Norway, Taiwan, the Philippines, and so on.
Beijing is clearly executing a long-term strategy whose success, while not preordained, is plausible. When I joined the Office of the Secretary of Defense in January 2017 as the special adviser for North Korea and senior adviser for Korea policy, I saw firsthand that South Korea would not give in to Chinese bullying. However, it was clear that China had succeeded in forcing Seoul to weigh potential Chinese economic retaliation in its defense-related decisions.
China wants its neighbors to understand that they must receive China's blessing on national security decisions to avoid real economic pain. For example, in June 2020, when the U.S. and South Korea executed an operation to replace outdated equipment at the THAAD site, President Moon Jae-in's government prioritized the avoidance of Chinese retaliation to the extent that it notified Beijing in advance.
It became a common public criticism in South Korea that the U.S. did not do enough as an alliance partner to help the Asian country through this crisis. That was unfair, the U.S. did a lot, much of it still private. But the criticism underscores that American alliances must adapt to China's changing norms of gray-zone coercive economic diplomacy. If we do not act to mitigate it, China's clear threat will live rent-free in the heads of U.S. allies and partners in the region. China could effectively impose soft suzerainty.
In a February editorial for The Wall Street Journal titled "An Economic Article 5 to Counter China," Jonas Parello-Plesner advocates a collective security approach based on the principle that "an attack on one is an attack on all." This idea has merit and deserves consideration, but also suffers from well-established weaknesses in collective security frameworks overall and against China specifically.
First, China has created plausible deniability that it directs these reprisals at all. Instead, Beijing ofen claims independent action by patriots, though in the Australia case Beijing has been far more forthcoming. Even though it has been more than a decade since the Senkaku crisis, there is still debate over whether China simply accelerated already-planned reductions in rare earths output.
Second, economic warfare is generally more nebulous. In military terms, we know when foreign troops invade a country. Economic retaliation subject to an Article 5-style guarantee -- the principle of collective defense at the very heart of the North Atlantic Treaty Organization -- would be far less clear-cut.
Third, collective security arrangements presume that all actors will see a breach the same way and agree upon a response. However, global economics virtually guarantees that even in the face of unambiguous Chinese economic warfare (which we are unlikely to get) some stakeholders will ask why their unmolested business interests with China should suffer in solidarity. Many will conclude that Chinese economic warfare against one sector creates opportunities in other sectors for the savvy.
Over the last few decades, China has become dominant in so many critical sectors that a bottom-up review of our reliance is necessary. China's dominance in the rare earth market is already declining because the Senkaku crisis changed the risk from abstract to concrete. Early signs from the Quad meeting and the decision to diversify supplies of microchips show the Biden administration recognizes the threat the same way the Trump administration did.
This is why the U.S. needs a coordinated, whole-of-government approach if we are to remain a credible alliance partner. To date, most U.S. action is in the military domain via the Asia Reinsurance Initiative Act and the Pacific Deterrence Initiative. These are geared toward hardening and dispersing U.S. military capabilities, promoting democracy and transparent government, and furthering resiliency.
We now know that if China has a substantial stake in a specific sector with another country, Beijing will use it as a tool of economic coercion. So the obvious solution is to diversify as much as possible and remove the temptation for China's planners. That will take some work. We should get started.