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Economic coercion refers to the use of trade dependencies for political blackmail. Following the 2022 energy crisis, Western policymakers fear that China could exploit similar dependencies in other sectors. There are precedents to that. In 2010, China banned rare earth exports to Japan as part of a dispute relating to contested waters, while in 2020, it targeted imports of Australian wines in response to Canberra calling for an investigation of the origins of COVID-19. In 2021, China put an embargo on Lithuanian exports following the establishment of a Taiwanese representation in Vilnius.



There are two main approaches to deal with economic coercion. The first is to reduce the exposure to trade dependencies. This can be done through trade diversification, by producing domestically, developing alternative technologies or simply through stockpiling. The second is deterrence. For instance, the EU’s ‘anti-coercion instrument’ aims to ensure that the use of economic coercion against EU countries comes at a high cost.  



Both approaches are more effective when applied together and pursued with partners. The costs of diversification are more easily borne on many shoulders while deterrence is more effective when more countries participate. While there is disagreement between the EU and the US on the right economic policy vis-à-vis China, there is consensus among the G7 regarding economic coercion. A joint statement is thus a chance to signal unity in the face of geopolitical challenges. 

The Why Axis is a weekly newsletter distributed by Bruegel, bringing you the latest research on European economic policy.