At a protest against the South Korean government's decision to deploy THAAD, Seongju, South Korea, July 2016.
Kim Hong-Ji / REUTERS

Since last July, China has been blocking a variety of South Korean goods and services from entering its market, in sectors from cosmetics and hardware to air travel and tourism. The cause of its actions appears to be Washington and Seoul’s decision that month to deploy the Terminal High Altitude Area Defense system to South Korea. The two allies argue that THAAD is designed to counter North Korean attacks, whereas Chinese officials paint the missile defense system as a tool whose radar could be used to snoop on China’s own arsenal of missiles, undermining the country’s nuclear deterrent.

Over the fall and winter, as South Korea descended into a political corruption scandal that eventually led to the impeachment of President Park Geun-hye, Beijing stepped up its economic coercion, appearing to take advantage of the domestic uncertainty in Seoul in a bid to undermine its security cooperation with Washington. Since then, Beijing has kept up the pressure. If China succeeds—or even appears to succeed—in blocking THAAD, it could set a dangerous precedent, emboldening Chinese policymakers to expand their use of economic leverage as a coercive tool against China's other trading partners. To counter this risk, the administration of U.S. President Donald Trump should continue to strengthen its cooperation with Seoul on North Korea and work toward THAAD’s deployment, while at the same time trying to reassure China that the missile defense system does not undermine China’s nuclear deterrent. It should also look for opportunities to raise the costs of Beijing’s coercive behavior.

STOP THE MUSIC

The current spat is not the first instance of economic friction between China and South Korea. During the so-called Great Garlic War, between 2000 and 2002, China banned imports of South Korean cell phones and the common plastic polyethylene in response to tariffs that Seoul had imposed on Chinese garlic exports. In 2013, tensions between the two countries flared over a Chinese measure that effectively blocked imports of South Korean kimchi at a time when China’s own kimchi exports to South Korea were surging. Seoul has also been a third party to more than a dozen disputes with Beijing at the World Trade Organization. Yet all these conflicts were fundamentally commercial: they involved the kind of tit for tat that is common in large trading relationships, even between close allies. (The United States, for example, has received more complaints at the WTO from the European Union than from any other trading partner.)

China’s current campaign against South Korea departs from this trend, however. It is the first time that Beijing has attempted to use coercive economic diplomacy to influence South Korea’s security policy. South Korea has thus joined the growing list of countries that China has punished economically for unwelcome political moves—from Norway, whose salmon exports China blocked after the Norwegian Nobel Committee awarded its Peace Prize to the Chinese dissident Liu Xiaobo in 2010, to the Philippines, whose tropical fruit exports China subjected to a quarantine over tensions in the South China Sea in 2012.

A Terminal High Altitude Area Defense (THAAD) interceptor is launched during a test in an undated photo.  
U.S. Department of Defense, Missile Defense Agency / Handout via Reuters

Beijing has not officially acknowledged that either of those commercial interruptions were politically motivated, claiming instead that they were simply the result of routine efforts to impartially enforce Chinese laws and regulations. By relying on national health and safety standards and other such criteria—areas in which international trade rules allow national governments broad discretion—China has deflected political responsibility for its actions and limited the ways that its targets can seek redress.

In public, Chinese officials have similarly denied that Beijing’s restrictions on South Korean goods are motivated by THAAD. But recent events suggest otherwise. Washington and Seoul began discussing THAAD’s deployment in February 2016, after North Korea carried out a nuclear test and a missile test. The Chinese ambassador to South Korea responded to those talks by saying that the Chinese–South Korean relationship would be “destroyed in an instant” if THAAD were deployed on South Korean soil. After the United States and South Korea formally agreed to deploy THAAD in July, Wang Yi, the Chinese foreign minister, warned his South Korean counterpart that Seoul had “undermined the foundations of trust between the two countries.” The next month, the performances of a number of South Korean artists in China were canceled, and Beijing began restricting the broadcast of South Korean dramas and Chinese television shows with South Korean actors on Chinese networks. The range of apparently retaliatory measures has grown since then. China has imposed a ban on South Korean companies operating charter flights between the two countries; expanded its boycott of South Korean cultural products; prohibited the sale and distribution of certain South Korean cosmetics, air purifiers, and toilet seats; and barred electric-car makers that use batteries made by the South Korean firms Samsung and LG from receiving Chinese government subsidies. According to The Korea Times, not a single South Korean entertainer performed in China in October or most of November—a striking absence given the enormous popularity of South Korean pop stars in China. In total, according to the Korea Institute for National Unification, a government-run think tank, China has taken 43 retaliatory actions against South Korea: 23 in the cultural sphere, 15 in economic areas, and five on diplomatic, political, and military matters.

Perhaps the clearest indication of China’s retaliatory motives is the case of the South Korean conglomerate Lotte. In October, a commentary in the Communist Party–run People’s Daily—bylined to Zhong Sheng, meaning “Voice of China,” a pen name that signals an article’s alignment with official views—warned ominously that the United States and South Korea would “pay the price and receive a proper counter attack” if they went ahead with the deployment of THAAD. In mid-November, the South Korean government took a major step in that direction, reaching a land-swap deal with Lotte to deploy THAAD on a golf course owned by the conglomerate. The next month, Chinese authorities suddenly began a series of tax and safety investigations into Lotte’s operations in Beijing, Chengdu, Shanghai, Shenyang, and Tianjin. (According to the Financial Times, in late December, Chinese Foreign Ministry officials also directly threatened Lotte over THAAD, bypassing the usual official channels to do so.) The measures were not lost on Lotte’s management: a board meeting scheduled to confirm the land swap in mid-January was postponed, and when it was rescheduled, neither a final decision on the deal nor a timeline for reaching one materialized. On February 6, Lotte announced that it would close three of its stores in Beijing, citing what it called “the THAAD problem” as an element in its decision. Whether the land-swap deal between Lotte and the South Korean government will go ahead remains unclear.

If the United States and South Korea can make coercion costly, then China might find reason to rethink its tactics.

China’s retaliatory measures have not been confined to the economic domain. In January, China expelled 32 South Korean Christian missionaries who had been working near the North Korean border. Officials from China’s Foreign Ministry have also stepped up contacts with lawmakers from South Korea’s opposition, seven of whom met with Wang in Beijing in January. After the meeting, the leader of that delegation, former Incheon Mayor Song Young-gil, said that the Chinese had privately acknowledged a tacit connection between THAAD and China’s cancellation of performances by K-pop musicians. A few days later, on January 9, Chinese military planes entered South Korea’s air defense identification zone. The incursion was unusual for its size—some eight aircraft were involved—and for the fact that it included six strategic bombers, an early warning plane (a kind of plane used as an airborne radar and command platform), and an intelligence-gathering aircraft. South Korean Defense Minister Han Min-koo suggested that the move may have been an attempt to pressure South Korea over THAAD.

So far, South Korea has stood firm and even pushed back against Chinese pressure. Last month, Seoul stopped issuing new visas or renewals for Chinese teachers at Beijing’s Confucius Institutes in South Korea (although it denied that the measure was politically motivated). The current South Korean government continues to strongly support the deployment of THAAD. But the political turmoil in Seoul and the potential for Beijing to ratchet up the pressure have injected new uncertainty into what previously seemed to be a done deal: although Gallup Korea polls suggest that domestic support for THAAD continues to hover around 50 percent, a poll conducted by Realmeter showed that the percentage of South Koreans in favor of THAAD’s deployment fell from 44 percent last July to 34 percent in December. Moon Jae-in, an opposition lawmaker who is the current front-runner in the race to be South Korea’s next president and has long been seen as an opponent of THAAD, has argued that the next government should decide whether the missile defense system will be deployed—without staking out a firm position himself. 

Japanese Foreign Minister Fumio Kishida, South Korean Foreign Minister Yun Byung-se, and Chinese Foreign Minister Wang Yi in Seoul, March 2015.
Kim Hong-Ji / REUTERS

MAKING COERCION COSTLY

Not all the troubles in the Chinese–South Korean relationship are related to THAAD’s deployment. The fact that South Korean exports to China have fallen for the past three years has more to do with the slowdown in global trade than with bilateral security tensions, for example. And China’s efforts to start producing domestically many of the products and services that the country now imports from South Korea will probably do more to shape the trade ties between the two countries than China’s economic coercion. Nevertheless, Beijing’s strategy has already helped shape the decisions of some major South Korean firms and has cast South Korea’s economic dependence on its larger neighbor in a new and worrisome light. And it represents a potent warning to other countries of the potential economic consequences of challenging Chinese interests.

If China succeeds in preventing THAAD’s deployment, the chance that it will behave similarly in the future will rise. That is troubling in part because more than 120 countries depend on China as their top trading partner, including many important U.S. allies and partners. As the Chinese economy continues to grow and Beijing steps up its economic statecraft, the world’s dependence on Chinese trade could increase—and few countries have the resources or the political will necessary to insulate themselves from the economic coercion such dependence could facilitate.

The United States has been the world’s largest economy for over a century, and Washington’s approach to economic statecraft—which focuses on promoting economic integration and depoliticizing disputes through rule-making and institution building—reflects this history. The lessons that Beijing learns from the current struggle over THAAD will shape the development of its own diplomacy as a great power. The Trump administration would do well to consider what those lessons might be.

The United States’ first priorities should be to further reassure South Korea of the United States’ commitment to their alliance and to ensure that THAAD is deployed. That would send a message to Beijing that coercive diplomacy cannot undermine the allies’ efforts to counter the nuclear threat posed by North Korea. The Trump administration should also work to ensure that U.S. and South Korean officials share information about China’s campaign against THAAD, which would limit Beijing’s ability to deny responsibility for its actions.

At the same time, the United States should continue to seek to try to assuage Beijing’s concerns about THAAD, by, for example, offering to give Chinese officials technical briefings on the system’s capabilities. (China has so far refused such previous offers.) U.S. officials should also urge China to put greater pressure on North Korea to halt its nuclear and missile programs—an outcome that would greatly decrease the United States’ and South Korea’s security concerns and could make measures such as the deployment of THAAD unnecessary in the future. Finally, Washington, together with Seoul, should look for opportunities to raise the diplomatic costs of Beijing’s coercive behavior through public statements and by disclosing information about the economic effects of Beijing’s actions. If the United States and South Korea can make coercion costly, then China might find reason to rethink its tactics.

  • BONNIE S. GLASER is Senior Adviser for Asia and Director of the China Power Project at the Center for Strategic and International Studies. DANIEL G. SOFIO is a Research Associate with the Scholl Chair in International Business at CSIS. DAVID A. PARKER is an Associate Fellow with the William E. Simon Chair in Political Economy at CSIS.
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