China’s New Trade Weapon: Shaking Down Foreign Firms

Michael B. Greenwald

Security, Asia

Beijing has been targeting foreign companies with a form of geoeconomic extortion that has caught Washington flat-footed.

President Donald Trump’s “order” last month that U.S. companies should leave China signaled a risky new phase in the U.S.-China trade war. But CEOs should not lose sight of the fact that the biggest threat to their market access to the world’s largest middle class is not Donald Trump but Xi Jinping. Indeed, Beijing has been targeting foreign companies with a form of geoeconomic extortion that has caught Washington flat-footed.

China’s playbook is simple enough: demand that a major corporation “comply” with some Communist Party doctrine—such as sensitive territorial claims—or face boycotts, code violations or loss of access to Chinese consumers. If left unchecked, Beijing’s aggressive use of its “rules” threatens to turn Western firms into the Communist Party’s enforcers. With Hong Kong seized by protests, these efforts have now taken a sinister turn. Washington must set a red line to deter this corporate shakedown.

So far, China’s extortion has gone unpunished. Last year, Beijing challenged thirty-eight airlines, including United, Delta and American, to unify Hong Kong, Macau, Taiwan and Tibet under the same label as the People’s Republic of China. Their choice? Comply or face potential recourse from the China Cyberspace administration, which shut down Marriott’s Mainland website for one week earlier in January. Though the White House dismissed the campaign, Beijing’s strategy borrowed from the Treasury Department’s toolkit by weaponizing market access. China is poised to overtake America as the world’s largest air travel market in the early 2020s, thus making access essential for global carriers. Even if the firms disagreed with these policies, economic reality necessitated compliance, much in the same way that foreign firms have exited Iran to maintain access to American financial markets.