Last week, Japan's finance minister expressed concerns over reported customs delays for Japanese companies in China. Some observers have described disruption to Japanese trade as a form of economic sanctions imposed by Beijing to signal its displeasure with Tokyo over the Senkaku/Diaoyou Islands dispute. With world trade already slowing – the WTO recently cut its forecast for world trade growth this year to 2.5% from 3.7% – this is a particularly bad time for a trade dispute between East Asia's two economy heavyweights.
If the sanctions diagnosis is correct, it wouldn't be the first time China has chosen to use international trade to pressure Japan. In 2010, there were claims that China had blocked the export of rare earths as part of a dispute over Tokyo's detention of a Chinese fishing boat captain.
And it's not the first time that China has wielded the trade weapon this year: a few months ago there were claims China was imposing restrictions on banana imports from the Philippines in retaliation over a dispute relating to contested waters around the Scarborough Shoal in the South China sea. The Philippines tourism industry also suffered fallout in the form of canceled visits. Last year, when the Nobel Peace Prize committee announced it was going to honour a prominent Chinese dissident, exports of Norwegian salmon to China were targeted in response. Likewise, researchers have found empirical evidence that Beijing has punished countries that officially received the Dalai Lama with a reduction in their exports to China. [fold]
To be fair, China is far from unusual in using international trade to send messages to other economies. There's a long history of trade sanctions and trade embargoes to attest to that. But, as I noted in a previous post, the potential vulnerability of 'Factory Asia' to politicised trade disputes means that, if used too frequently in the region, this particular weapon could quite quickly become a two-edged sword.
Still, looking ahead, if the much-anticipated rebalancing of the Chinese economy finally does arrive, it will have significant implications not only for regional trade patterns but also for the effectiveness of the trade weapon at Beijing's disposal.
That's because a China that is less reliant on external demand and a bigger source of domestic demand is going to be simultaneously less vulnerable to trade disruptions at home while becoming an even more important market for other trading partners. Controlling access to China's large domestic market already gives Beijing substantial geo-economic heft. If China's growth difficulties can be overcome, that weight will continue to grow.
Photo by Flickr user lensfodder.