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97 Hypothesis two: The United States can use trade barriers to signal displeasure with Chinese policies showing China’s policy as contrary to the global norms.
The first hypothesis can be confirmed. The United States, despite all of the elements that proponents of US trade leverage being present, fell short in its ability to influence Chinese policy maker’s economic decisions. China did not lose any market share of the global steel market, instead throughout the years of the study, their exports continued to grow; furthermore, the China enacted no reforms as a response to the United States passing of Public Law 112-99. The United States impotent attempts to capitalize on theoretical economic coercive leverage did little to persuade allies around the world to call for more economic freedom, instead, their own reputation was put at risk when China disputed the law, albeit unsuccessfully.
The second hypothesis can also be confirmed, as the United States tactfully tied their economic interests with larger ideological goals of free trade. Public Law 112-99 doesn’t name China specifically, but instead applies to any “non-market” economy. This is not to say that the legislation wasn’t written with China in mind, but it is aligned with higher free market and capitalistic principles, although self-serving. These efforts gained validation in the WTO’s rulings, but even then, the United States grandstanding on free market ideologies, it is unlikely to compel real change in China’s policies or economic practices.
5.4 Rivaling explanations and conclusions
In the complexity of the United States political and economic climate it isn’t surprising that numerous interpretations of these actions arise. To complete the case study these differing explanations need to be accounted for and either accommodated or rejected. The three main counter-narratives are: First, failure of the United States was less a result of the economic
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98 realities outlined in the previous section of the case study and more a function of insignificant political will; secondly, that the United States actions were not an effort at economic coercion, but arose out of domestic political and economic concerns; third, and perhaps most troubling, that this is an incomplete picture of economic coercion because the steps taken by the United States weren’t drastic enough.
Much like in the case of Chinese monetary power, the first varying explanation need not be contradictory to the argument made above; instead, the inability of the United States to
harness significant political and public outcry to create greater change of the Chinese policy is an additional hurdle the United States faces in the successful utilization of trade as a means of economic coercion. This is true for two reasons, first, generally the two parties support – or opposition – to free trade stem from different places, and second, there is little continuity in trade policy. Both of these complicate the bargaining feedback loop that Krustev outlines and is
largely apparent in the case study above wherein one state demands concessions in one area and the other relents to the demands or both sides sustain the loss of noncompliance (Krustev, 2010).
In this case, the United States can send mixed signals based on the differing objectives between Republicans and Democrats and different administrations or congressional sessions. Roach also saw this as an inherent difficulty in the United States political regime because there was no long-term central bargaining or planning measure (Roach, 2014). In cases, such as in Public Law 112-99 if China can sustain trade losses in the short-term they may be paid off in the long-term as consensus breaks down or the make-up of Washington changes. This is an additional factor particular to the United States and other democracies in utilizing trade as a means of economic coercion, but it doesn’t undermine the underlying argument.
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99 Additionally, some might argue that the United States motivations don’t fit with a case of economic coercion because motivations were primarily domestic. While it is certainly true that Obama yielded to domestic labor pressures and was making an effort to keep campaign
promises, the argument cannot ignore the international climate in which these took place. The labor pressures, the campaign promises, and the public outcry that resulted in Public Law 112-99 were reactions to cheap Chinese steel that were being dumped on the market. Although,
campaign promises are frequently made and frequently broken, and labor unions often call for higher tariffs and trade barriers, in this case real actions were taken. The domestic factors weren’t minimal; however, they cannot account for all of the facts of this particular case study that takes into consideration the international steel prices and Chinese overproduction.
Finally, the third explanation is a serious one especially today after Trump was elected by calling President Obama weak on China (Donnan & Hornby, 2016). Politicians especially may argue that the United States failed to significantly sway Chinese policy makers to curb steel subsides because tariffs and trade barriers were insignificantly high. Indeed, this case study doesn’t deal with sanctions which would eliminate the importation of Chinese steel while
maximizing United States leverage, but instead only with counter-vailing duties. That is because there are no instances of the United States resorting to such extreme tactics. The argument that the United States fails to influence China, not because they have insufficient leverage, but because they have not resorted to extreme enough measures is gathering steam (Z. Cooper &
Lorber, 2016). This is faulty logic that can lead to trade war. Although this case study does not make use of sanctions because no such sanctions exist, as shown above, the case does exhibit all of the prerequisites for successful use of economic coercion. The measures undertaken in the Public Law 112-99 were sufficient and match the intentions of the United States interests and
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100 therefore the lackluster performance of the United States attempt at economic coercion is not a factor of the actions taken but on the inherent difficulties in utilizing theoretic potential for economic coercion.
Because of steels centrality in modern infrastructure and security projects, as well as its core role in both Chinese and the United States economies both in providing jobs and wages as well as materials for further economic activity, it isn’t surprising that China and the United States have clashed many times on issues relating to the steel trade. Steel production was, of course, one of the ways in which Mao proposed China could complete its great leap forward, becoming a modern economy and a global power. After decades, China has indeed catapulted into economic success, and has found itself more capable to challenge the United States on all issues including trade. The United States policy makers still like to consider themselves the center of the world’s liberal trading system; however, the size of China’s economy will not be ignored and economic coercive action for lofty goals, as this case study shows, are difficult to obtain.
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Conclusion
Although, newspaper writers, politicians and even some scholars, like to theorize about the economic coercive potential between the United States and China this research shows that such speculation falls into the realm of fiction on par with Tom Clancy’s novel that depicts an economic conflict between the United States and China that escalates to war. The
co-dependency that exists between the United States and China is clearly troubling to both powers as they come to terms with their own economic realities in the context of what can be a
politically trying relationship. China seeks greater economic stability and pursues greater autonomy in economic decision making to that end; the United States, on the other hand is coming to terms with new challenges to the economic centrality that they have enjoyed since the second world war. These observations led to several questions being raised, namely: Who has economic coercive leverage and in what areas; when is economic coercive action in the Chinese-United States relationship likely to succeed; as well as, why aren’t there more instances in which economic coercive activity takes place.
In an effort to answer these questions several hypotheses were proposed for testing:
Hypothesis one: China can use monetary power to stabilize domestic market, meeting a limited but crucial aim of the Chinese government.
Hypothesis two: The renminbi’s ties with the dollar make long term currency manipulation difficult, limiting monetary power’s utility.
Hypothesis three: The United States cannot use trade as an effective means to influence economic decisions in China.
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102 Hypothesis four: The United States can use trade barriers to signal displeasure with Chinese policies showing China’s policy as contrary to the global norms.
Chapter two set up the theoretical framework for testing these hypotheses based on Kirshner’s tools of economic coercion and their terms of use and efficiency as well as provided the necessary theoretical background for understanding the relationship between China and the United States by using Keohane and Nye’s interpretation of complex interdepended and Roach’s analysis of the United States-Chinese co-dependent relationship. Chapter three confirmed the first two hypotheses by looking into the many facets of the economic relationship between the two countries. In so doing, it laid bare where the conventional thinking on the economic
leverage came from as well as the holes that aren’t adequately accounted for and sets up two case studies that can further reveal the true economic coercive potential between the two countries and test the remaining group of mirrored hypotheses.
Chapter four and five give the facts and analyses of the most-likely cases in which the respective countries could hope to be successful in their attempts at economic coercion. The Chinese case study depicting China’s real use of monetary power followed the 2014-2015 time period wherein China made policy changes to achieve special drawing rights. From this case study hypotheses three and four could both be confirmed because China’s aims were limited, but even within those limited goals their ability to sell U.S. Treasury bonds to ward off economic calamity was narrow. The United States case of real trade leverage followed Public Law 112-99 and the steel trade disputes that took place before and after in the years 2010-2014. From this case study the hypotheses could both be confirmed because the United States failed to change China behavior of providing subsidies to the steel industry or running steel mills through state
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103 owned enterprises. However, the United States did succeed a more limited objective of wielding the WTO mediation process to highlight Chinese transgressions in the world steel market.
Now at completion, it is important to look at the implications of this research that goes beyond the hypothetical and theoretical use of economic coercion between the United States and China by making use of a more complete version of the economic realities between the two countries as well as following two case studies. The reality shows that both sides gain a lot from cooperation, as is shown in the foreign direct investment flows both countries enjoy, as well as the many benefits that trade brings. However, it is become increasingly clear that tensions are rising despite the numerous benefits. This research does not go so far as to suggest that there will be no cases of economic coercive activity in the future. To the contrary, after studying the two cases studies it can be said that economic coercion does take place between the two
countries, but the impact of those actions and the difficulties in raising economic pressure without damage to the home economy makes economic coercion an ineffective and even dangerous way to settle disputes.
As the United States and China choose to confront each other on one of the many issues facing the two important world players the question of whether or not they will turn to economic means in an effort to coerce the other. However, this research makes clear that any effort to do so is fraught with both difficulty and risk. Indeed, the future is tough to predict, and while the conditions outlined in chapter three remain true this research suggests that neither China nor the United States will be able to effectively influence the others preferences using economic
coercion; however, as economic conditions shift that could change. This is part of the unequal co-dependence Roach feared from the Chinese-United States relationship (Roach, 2014). In fact, this is particularly true for China as they begin to make moves both to liberate themselves from
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104 their dependence on the dollar as their foreign reserve currency and to internationalize the
renminbi perpetuating their already sizable leverage in monetary power.
Indeed, this has already begun to come into fruition. McDowell and Liao show that the renminbi has become more internationalized due to higher demand and the strength and stability of the Chinese economy and in another paper they show how political factors also play a role in who signs preferential trade agreements with China as well as how this leads to interest
convergence. McDowell and Liao make a compelling case as they provide 25 countries that have established bilateral currency swap agreements and 37 countries that have central banks that added the renminbi to their reserve portfolio (McDowell & Liao, 2016; McDowell & Liao, 2015). These developments have implications for this research on two levels: first, while China’s newfound economic leverage in monetary policy cannot be used against the United States directly, it does have implications for other, economically smaller countries, that are also highly dependent on China; second, it shows how the economic and even political spheres of influence can begin to form. Indeed, particularly after the 2008 financial crisis many countries are become more skeptical of United States hegemonic power and the benevolence of the liberal capitalistic international economy that they championed. Instead, many scholars perceive a growing preference among states to have a Chinese led alternative parallel to the United States and the McDowell and Liao research seems to confirm such sentiments (Barma, Ratner, and Weber 2007; Rachman 2011).
Such spheres of influence and growing international tensions are reminiscent of the Cold War, and in light of this, the two countries should work to identify the trappings of economic coercion as a tool to influence the other, and recognize the harm that such actions would have on both of their economies as well as the world. Learning from the past and the failings of their
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105 previous attempts at using theoretical economic coercive potential China and the United States should seek to bolster and improve cooperation both economically and strategically instead of threatening the very system both countries interdependently rely upon.
Likewise, journalists would be wise to realize the greater complexity of the economic relationship as it is shown here, and take that into account when crying for greater economic reaction or retaliation on either side. Little mention was made about specific policy makers or political regimes during the course of this research; however, political leaders in both countries would be wise to realize the past inefficiencies or shortfalls of their previous attempts at
economic coercion. The two case studies provided a clear indication that no matter how great the theoretical advantage and the hypothetical pay-off, economic coercion in reality is a very difficult tool to use that can be just as destructive as it is useful.
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