Building resilience to economic coercion in the Indo-Pacific island states

The spectacular creation of AUKUS has drawn attention to the military response to China’s growing ability to project force across the Indo-Pacific. The fury it unleashed, evidenced by strong claims of predictable retaliation from China, has drawn global attention to hard power and the prospects for a new Cold War.

Yet economic rather than military might pose the most serious threat to the Indo-Pacific island states. President Xi Jinping is aggressively using China’s growing economic power to achieve political goals, and this is proving much easier than physical intervention.

The rapid expansion of the Chinese navy and its increasingly global reach has raised concerns for island countries in the Indian and Pacific Oceans as targets of geopolitical influence. Although not inherently militarily important, the islands in these oceans have for centuries allowed other states to project their power over the seas around them.

Given their potential strategic importance, these islands have been described as easy targets for Chinese economic coercion with serious security and economic consequences for democratic Indo-Pacific states such as the Quad Nations.

A new special ASPI file, Economic Coercion in Indo-Pacific Island States: Building Resilience, co-authored by me and David Brewster, finds that levels of such economic coercion may be more or less than what is assumed, depending on the observer’s point of view.

There are significant differences between island countries in the Indian Ocean and much smaller countries in the Pacific Ocean, but they share some common vulnerabilities that increase their susceptibility to economic coercion.

Insularity exposes their supply chains to immediate disruption, both natural and political. All are developing states heavily dependent on external capital and aid to advance their economies. Their small size, coupled with national economies dependent on the state rather than the private sector, confer significant control on narrow elites.

Many of these same conditions tend to make it more difficult to identify cases of economic coercion.

The matrix of economic coercion has two distinct elements. One axis of the matrix concerns the will of the State and its interest. Basically, is the state acting against its will against its own interests?

The second axis concerns the level of pressure or constraint used to compel compliance. Coercion involves the use of any combination of overt intimidation, threats, and naked physical power to achieve compliance. However, there are forms of “undue pressure” which do not quite reach the level of duress.

Given the economic and political asymmetries involved, China has rarely had to resort to open coercion to impose coercive economic pressure on the Indo-Pacific island states that it has exerted against much larger nations like the United States. Norway, Japan and Australia.

These could be seen as economic proxy wars in a larger campaign to rewrite the rules of international trade. However, they can also be used to intimidate small states.

Supporters of Australia’s resistance to economic coercion argue that the failure of such overt coercion can send the opposite message.

Our report identifies a few examples of coercion against the Indo-Pacific island states such as the stifling of tourism in Palau. However, coercion is rarely openly or openly applied.

Economic coercion from these states is rare for several reasons.

A key explanation comes from the agency these countries have to make economic deals that outside observers see as contrary to the best interests of the target country. Criticisms of “roads to nowhere”, overpriced buildings unsuitable for tropical conditions, and unaffordable loan deals are dismissed not so much because they lack substance but because they attack local decision-making.

In the words of former Samoan Prime Minister Tuilaepa Sailele Malielegaoi, critics question “the wisdom and intelligence of the leaders of the Pacific Islands” who know the interests of their countries better than those who bring complaints.

Similar defenses are being made against the will of island rulers to strike deals with China that foreigners deem unwise. Where is the coercion if the contracts for the requested projects and the loans to finance them are signed voluntarily?

Of course, critics respond, coercive pressure is not necessary when decision-making elites are in the pockets of the Chinese. Capture by the elite can account for corrupt decisions against the target nation’s own interests.

Ultimately, the gray area of ​​undue pressure – whispered threats, secret promises, fabricated local pressure groups – involves so many different tactics that it is impossible to prove that the economic levers were pulled to force a favorable outcome for Beijing.

The report also finds that national processes to prevent economic coercion are often neutralized to prevent concerns from becoming public. Well-funded counter-message campaigns, favorable deals with local media, a noisy diaspora and the like can silence local critics or prevent exposure of corruption.

Given all of the challenges in identifying and exposing economic coercion, the report concludes that building resilience can be difficult but is necessary.

Suggested measures include:

• develop codes of economic conduct to better identify and limit unacceptable economic constraints
• strengthen government and economic integrity institutions
• equip and mobilize island businesses to better protect themselves against the perverse effects of external economic coercion
• promote strong independent media and civil society organizations to improve transparency and promote the values ​​of an open society.

Cooperating with the Indo-Pacific island states to build this resilience does not depend on validating the extent of economic coercion. Doing so would delay any action. And our report shows that it would be very difficult to find such proof.

But the suggested measures can strengthen these states against coercion, serve as a prophylactic against the future use of economic coercion and, in general, contribute to the achievement of a free and open Indo-Pacific.