Building Resilient Economy and Resisting Economic Coercion

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Overview

The Asia Society Policy Institute (ASPI) participated in an international conference on “Building Resilient Economy and Resisting Economic Coercion,” held in Vilnius, Lithuania, on May 6–7, 2024. The conference brought together distinguished government, think tank, and private sector participants from 30 countries across dispute Europe, North America, Asia, and Latin America to discuss the growing challenge of economic coercion in an increasingly polarized world. The two-day event succeeded in fostering dialogue, sharing and learning from experiences with coercion, and discussing strategies to strengthen collective responses and resilience.

To lay the stage for the discussion, ASPI published a report, Resilience & Resolve: Lessons from Lithuania's Experience with Chinese Economic Coercion, which details how Lithuania was targeted. The report draws lessons learned from this case study and recommends actions policymakers can take to increase their resilience and make them less susceptible to coercion.

Key themes emerged from the conference, including the need for greater international cooperation, the importance of upholding the rules-based trading system, the critical role of diversification in reducing vulnerabilities, and the challenge of balancing openness and security in an era of geo-economic competition.

Discussion Summary

Day 1 of the conference, held in open session, featured high-level discussions on the drivers, methods, and impacts of economic coercion. In the opening session, Lithuanian Foreign Minister Gabrielius Landsbergis set the tone by sharing Lithuania's experience in the face of economic coercion from Russia and China. He emphasized the critical role of reducing dependencies, pushing back firmly against coercion, mobilizing the support of like-minded allies, and providing transparency. In prerecorded video remarks, European Commission Executive Vice President Valdis Dombrovskis highlighted the EU's new Anti-Coercion Instrument (ACI) and broader economic security strategy focused on risk mitigation, competitiveness, and strategic partnerships.

The high-level panel "Polarization of World Trade and the Rise of Economic Coercion" explored the geopolitical context of economic coercion, with speakers from Lithuania, the United States, Japan, and the European Commission sharing their perspectives on the weaponization of trade and economic tools by major powers such as China and Russia.

In his remarks, U.S. Under Secretary for Economic Growth, Energy, and the Environment Jose W. Fernandez emphasized the need for transparency and international cooperation in countering economic coercion. Fernandez also underscored the importance of providing countries with the necessary support to resist economic intimidation effectively. Senior Deputy Minister for Foreign Affairs of Japan Keiichi Ono stressed the necessity of a whole-of-government approach and noted Japan's leadership in launching the G7 coordination platform on economic coercion.

Overall, panelists emphasized the need for countries to reduce their economic vulnerabilities and diversify supply chains to build resilience against coercive practices. This requires a comprehensive approach and joint efforts among like-minded nations in sharing intelligence, coordinating responses, and deterring economic coercion. Recent G7 outcomes on economic security and the EU's new ACI were highlighted as important steps. The speakers acknowledged the necessity of de-risking strategic industries and critical supply chains while maintaining economic openness. Resisting coercive economic practices comes with costs, making effective public communication crucial in maintaining societal support for defending actions in the face of pressure.

The panel concluded that addressing economic coercion requires a multipronged strategy, combining efforts to strengthen the multilateral trading system with pragmatic national and regional measures. Panelists stressed the importance of legal and economic tools, strong international cooperation, and a united front in countering coercive practices and defending the rules-based international order.

The second panel examined specific cases of economic coercion targeting Lithuania, Australia, Canada, and other countries. These cases highlighted the similarities and also the evolving nature of coercive tactics employed, from formal trade restrictions to informal pressures and even “hostage diplomacy.” The Lithuanian representative discussed its unique situation, having faced coercion from both Russia and China and emphasized the importance of increasing resilience and broadening economic ties. The Australia panelist addressed the importance of supporting businesses in diversification efforts and utilizing World Trade Organization (WTO) dispute settlement mechanisms. Canada’s participant shared its case of hostage diplomacy linked to economic coercion and stressed the need for collective responses. The business representative emphasized the need for greater government-industry coordination and support to navigate trade disruptions.

Panelists agreed on the importance of international cooperation; however, they also acknowledged the limitations of the current multilateral trading system and the need for reform, as well as complementary tools at national and regional levels.

The panel concluded that mitigating the risks of economic coercion requires a multi-faceted approach, including enhancing economic security, diversifying trade relationships, supporting businesses, and fostering solidarity among like-minded nations. Panelists emphasized the importance of defending democratic values and the rules-based international order in the face of growing challenges from authoritarian regimes.

The closing panel focused on the policy toolbox for responding to coercion, including the EU's new ACI. Panelists pointed to the adoption of the ACI as a significant milestone, while also questioning its ultimate effectiveness given that it has not yet been used. The importance of unity, trust, and joint risk assessments among EU member states was emphasized to make the instrument work.

Beyond the ACI, panelists underscored the importance of multilateral coordination, including diplomatic support, utilization of the WTO’s dispute settlement mechanism, and trade facilitation, as well as national-level instruments to reduce the effects of economic coercion. Speakers also discussed the balance between strategic autonomy and economic openness, with some advocating for de-risking and diversification of supply chains,while others raised the possibility of decoupling as an option to consider.

The discussion also touched on the challenges faced by smaller countries, such as Costa Rica, in navigating economic pressure and the value of the multilateral trading system in addressing these issues. Panelists debated the effectiveness of the WTO dispute settlement mechanism in dealing with economic coercion, with some calling for reform and others emphasizing the need to work within the existing framework. Panelists stressed the importance of solidarity among countries with shared values, the development of strategic tools like the ACI, and the need to adapt to the evolving nature of economic coercion in an increasingly complex geopolitical landscape. The panel noted tensions between the desire for multilateral solutions and the challenges of pursuing these in a polarized trade landscape, pointing to the need for creative responses.

Day 2 of the conference, held under Chatham House rules, deepened the discussion through focused panel exchanges on evaluating trade dependencies, measuring the impact of coercion, and formulating collective and strategic responses.

The first panel on methodologies to evaluate trade dependencies featured insights from the Organisation for Economic Co-operation and Development’s (OECD’s) report Towards Demystifying Trade Dependencies: At What Point Do Trade Linkages Become a Concern? Participants discussed patterns of trade concentration, strategic dependencies, and supply chain risks. They emphasized the importance of blending quantitative and qualitative insights, the challenges of data granularity and timeliness, and the need to consider both economic and political factors behind coercive measures.

The second panel focused on measuring the impact of economic coercion. It featured a presentation on the OECD’s recent report Trade Impacts of Economic Coercion, which analyzed the economic impact of four specific instances of coercion. The discussion highlighted the targeting of politically salient products, the use of both formal and informal measures, and the challenges targeted countries face in diversifying markets and sustaining price premiums. Moreover, the importance of understanding broader economic, political, and societal impacts was stressed, along with the value of collaborating with the business community for detailed insights. Participants also noted asymmetries between market- and state-driven economies in their ability to impose and absorb costs.

The third panel exchanged thoughts on the range of collective responses to economic coercion. The participants stressed the need for well-defined objectives to lessen the impact of coercive actions and uphold a rules-based economic framework. They highlighted the importance of understanding the intent and strategy of the coercing country, scenario planning and preparedness, building coalitions of like-minded partners, engaging in strategic domestic communication and working with business. They also discussed the value of considering both short-term responses, such as providing immediate assistance to affected sectors and finding alternative markets, as well as medium- to longer-term strategies to build resilience, including supply chain diversification and the strengthening of trade rules.

Participants also debated the effectiveness of multilateral fora including the WTO, the importance of public solidarity, the value and limits of deterrence, and the challenges of coordinating responses among diverse partners. Recommendations included expanding joint statements of support, creating economic incentives for supply chain diversification, improving non-trade tools to raise costs for coercive actors, and strengthening informal information-sharing and early warning mechanisms among like-minded partners.

Key Themes and Takeaways

Current Challenges:

Economic Coercion as a Growing Challenge: Economic coercion is a growing challenge to the rules-based trading system, driven by the rise of geopolitical tensions and the weaponization of interdependence by major powers.
Balancing Openness and Security: Balancing economic openness and security in an era of geo-economic competition is a critical challenge, with tensions between the desire for multilateral responses and the difficulties of reform given current geopolitical realities.

Strategies and Recommendations:

Multipronged Approach: Countering economic intimidation effectively requires a comprehensive strategy spanning national, mini-lateral, and multilateral levels. This includes reducing strategic vulnerabilities, diversifying trade ties, strengthening partnerships, and updating trade rules.
Resilience through Diversification: Reducing vulnerabilities through trade diversification is crucial for bolstering preparedness against economic coercion. While each case of coercion is unique, there are common patterns in the tactics used, the products and countries targeted, and the difficulties of response.
Legal and Regulatory Frameworks: The development and strengthening of robust legal and regulatory frameworks were highlighted as essential tools for resisting economic coercion. The European Union's efforts to bolster economic security through tools such as the ACI were discussed as examples of proactive measures.

Cooperation and Partnerships:

International Cooperation and Rules-Based Trading System: Greater international cooperation and the upholding of a rules-based trading system are essential to address coercive economic practices. However, geopolitical realities necessitate adaptable and flexible solutions in the interim.
Role of International Fora and Ad Hoc Coalitions: Multilateral institutions, including the G7 and OECD, play crucial roles in norm setting, trust building, and practical coordination. These efforts must be supplemented by ad hoc coalitions of like-minded partners and the sharing of experiences and best practices.
Private Sector as a Key Partner: The private sector is a vital partner in the fight against economic coercion and should be better represented in future conferences on this subject. Closer government-business coordination and creative incentives for developing alternative sourcing strategies and de-risking are necessary.

In conclusion, the Vilnius conference made an important contribution to the international policy conversation on economic coercion. By convening a wide spectrum of experts from government, international organizations, think tanks, and business, it provided a platform for sharing experiences, brainstorming on collective responses, and agenda setting. The discussions spotlighted the multi-faceted nature of the economic coercion challenge and the need for an equally multipronged, cooperative response. While much work remains to translate ideas into action, the conference generated significant momentum and opened up pathways for future collaboration in this important policy area.