Narrowly defined, gunboat diplomacy refers to the pursuit of foreign policy objectives with the aid of conspicuous displays of naval power. More generally, gunboat diplomacy evokes the image of European and US war ships besieging the ports of weaker countries in an attempt to extract economic concessions from them. Commodore Perry and his black ships famously opened Japan to US trade in 1853, ending its two centuries of isolationism. Less well-known, Commodore Shufeldt forced Korea to negotiate a bilateral trade treaty with US in 1882, but only after a modernising Japan had resorted to its own gunboat diplomacy to impose an unequal treaty on Korea in 1876.
Gunboat diplomacy was also a fairly common feature of international intercourse, and not just in Asia. From Anson’s “visit” to Canton in the mid-18th century and the Opium Wars in the mid-19th century to the so-called Third Taiwan Strait Crisis in 1995, when President Clinton sent an aircraft carrier group through the strait to deter Chinese use of force, China often faced the sharp edge of Western naval power. Often, but not always, gunboat diplomacy sought to extract economic concessions and privileges. China was forced into granting foreigners extraterritorial rights and into ceding both territory and tariff autonomy. Britain, Germany and Italy imposed a naval blockade on Venezuela in 1902 in order to force the country to pay its debt to private bondholders. And, of course, Teddy Roosevelt’s big stick diplomacy in the guise of the infamous Roosevelt corollary (1904) to the Monroe Doctrine (1823) led the United States to intervene repeatedly in countries in the Western hemisphere, on several occasions to enforce debt repayments.
Economic statecraft refers to the use of economic tools in pursuit of political ends. Gunboat diplomacy can be thought of as the use of military means in pursuit of economic ends, though in practice it can also involve political ends. While gunboat diplomacy has gone out fashion, economic statecraft seems to be experiencing a major revival. Both the United States and China are increasingly resorting to foreign trade, investment and technology policies in in pursuit of narrow or general political-diplomatic goals. Washington, for example, restricts technology exports to China in the name of national security. China restricts travel to Korea in order to signal its displeasure of Seoul’s decision to install a new missile defence system.
None of this is really new. Embargoes and export controls have been around for a long time. In the History of the Peloponnesian War, Thucydides recounts how Athens imposed a trade embargo on Sparta’s ally Megara. The allies instituted naval blockades against the central and axis powers during WWI and WWII and the US sought to deter Japanese expansion in Asia through the use of trade and financial sanctions in the run-up to Pearl Harbor. Nonetheless, the importance of economic statecraft has increased with respect to Sino-US relations.
Geoeconomics is not replacing geopolitics, contrary to Edward Luttwak’s prediction three decades ago. “Geoeconomics is displacing geopolitics. The methods of commerce are displacing military methods – with disposable capital in lieu of firepower, civilian innovation in lieu of military-technical advancement, and market penetration in lieu of garrisons and bases. States (…) will not disappear but reorient themselves towards “geoeconomics” (Luttwak 1990). Geoeconomics is an admixture of the logic of conflict with the methods of commerce. Rather geoeconomics is becoming more important in the context of intensifying geopolitical competition between the US and China. A high degree of international economic interdependence gives both Beijing and Washington ample opportunities to exercise economic statecraft and pursue geoeconomic policies.
States can exploit asymmetric interdependence in an attempt to deter or to coerce. By manipulating the flow of goods and services, capital, people (exit bans) as well as non-material item such as data and knowledge, states can exercise leverage. By threatening to restrict such flows, a state can impose costs on the targeted (stick). By promising to facilitate such flows, a state can offer benefits (carrot). An asymmetric relationship lends itself to leverage – whether in pursuit of economic and broader political ends.
The post-WWII international regime sought to de-politicise economic relations by way of multilateral rules that were meant to limit the relative power of economically powerful states and by way of providing smaller countries with reassurances that they will not get exploited. In other words, principles such as reciprocity and non-discrimination and rules such as tariff binding were meant to mitigate asymmetric interdependence. By the same token, a weakening of the rules-based international economic order allows for the politicisation, securitisation and even weaponisation of interdependence (Farerell & Newman 2019).
The China-US relationship has moved from cooperation to competition and even conflict or what has been referred to as 'managed enmity' (Feigenbaum 2020, Jaeger 2020). China’s international economic integration combined with its greater power and more extensive interests has made Beijing more assertive. This has alerted Washington. The increasing geopolitical competition between the US against the backdrop of economic interdependence creates opportunities, even incentives to resort to economic statecraft and play the geo-conomic game.
Sino-US economic relations are also increasingly, if thus far only partially subservient to security considerations. In the 1970s, economic relations were an afterthought as far as the Sino-US relationship was concerned. The purpose of the Mao-Nixon opening was geostrategic and squarely aimed at the USSR. After the initiation of Chinese economic reform in the late 1970s and particularly after the end of the Cold War in the late 1980s, economics became a more prominent factor in Sino-US relation. Over the past decade or so, economic cooperation has increasingly begun to be overshadowed by an emerging security competition. In fact, economic relations are increasingly seen by both Beijing and Washington through the prism of strategic competition. Contrary to Luttwak’s prediction, geopolitics remains a central aspect of Sino-US relations, but economic intercourse is increasingly becoming ‘geoeconomised’.
Ever since the US became powerful enough to have interests in and project to Asia, it has had fairly constant interests: prevent the emergence of a hegemonic power in East Asia and access to Asian markets, requiring in turn free (or non-discriminatory) trade and freedom of navigation. China’s continued economic and political rise has led the US to resort to geoeconomics. While initially unclear whether Washington was resorting to economic statecraft vis-à-vis China in order to (1) level the playing field, (2) increase bilateral leverage in order to extract greater concessions or (3) prevent China from weakening US economic and technological leadership, it is now fairly clear that the latter is the main driver of US policy towards China, not least because it enjoys bipartisan support (Jaeger 2019).
Washington shares both economic and political concerns with respect to Chinese economic policies. Concerns relate to IPR (cyber-theft, forced transfer), reciprocal market access with respect to trade and investment (including regulatory barriers) and the role played by government supported SOEs, to name just the most important ones. These issues certainly make for an un-level playing field.
From a short-term welfare perspective, it is at first difficult to understand why a country should be upset if another country sells cheaper products or overpays for assets. But the concern is of course that in oligopolistic markets producers once they reach dominance may be able to exploit their market power for both economic and non-economic purposes. If subsidised exports eliminate foreign competition, producers will have more pricing power after the fact. If the acquisition of foreign assets allows a foreign producer to bottle up strategic supplies or critical technology, it gains potential economic and political leverage. The risk is heightened even more if the producer does not operate on the basis of market principles and is influenced by political considerations, advertently or inadvertently. Economically, such concerns are particularly relevant in cases where supply is inelastic, subject to political rather than market calculus and/ or where goods are characterised by increasing returns to scale and are not reverse-engineerable. Externalities and security spillovers will increase concerns further. Under these circumstances, economic rents accrue, market power is considerable and political leverage is significant.
Put differently, extreme asymmetric interdependence or outright dependence translates into both heightened economic and political sensitivities and vulnerabilities. The same logic applies to the provision of many international public goods such as an international currency, freedom of navigation, public health, financial stability, free trade and so on (Jaeger 2020). Those who provide such goods in a quasi-monopolistic manner accrue economic rents and gain economic-political leverage (e.g. dollar as international currency). No wonder that Washington is concerned about Chinese state capitalism and its ambitious development policies with respect to international public goods (e.g. digital silk road, Made in China 2025, China Standard 2035), its push into emerging technologies (e.g. AI, quantum computing, biotech, composite material) and the creation of parallel international institutions circumventing US-dominated regimes (e.g. AIIB, BRI, renminbi internationalisation). Washington is of course inadvertently contributing to China’s push to reduce its vulnerability vis-à-vis US goods and institutions by exploiting China’s dependence on them. Decoupling in critical areas is likely precisely because both Washington and Beijing are seeking to leverage their position where asymmetric interdependence is in their favour and de-couple where it is not.
Washington is pursuing a geoeconomic strategy vis-à-vis China and is quite prepared to weaponise interdependence. A few semi-random observations. The US can only resort to use geoeconomic measures so many times before China will make to reduce its vulnerability. The sum of all geoeconomic measures does not amount to a coherent strategy. The US has thus far failed to do a proper cost/ benefits analysis and assess the probability of success. For many of the measures to be truly effective, they require third-party support lest they risk third-party spoilers weakening the effectiveness of US measures. If the US continues to resort to geoeconomics, China will redouble efforts to de-couple, thereby undermining US leverage and power. This will be all the more the case if China begins not only to provide public goods itself but to garner a greater following of consumers.
All of this is to say that geoeconomics is in full swing. Multilateral, non-discriminatory, largely de-politicised economic relations are giving way to more politicised, power-based economic and financial relations. The purpose of maintaining economic relationship is not to generate absolute economic welfare but relative economic, security and strategic gains and/ or to minimise sensitivity and vulnerability vis-à-vis one’s geostrategic competitor.
What about gunboat diplomacy? It is swinging, too, if less visible so. Few states these days send naval forces to extract economic concessions. While economics and security have never been completely dissociated, even within alliances, both the US and China will increasingly be engaging in linkage politics, if less visibly so than during the second half of the 19th century. With geopolitical competition increasing and hence rules-based multilateral cooperation weakening, power and especially military power and security will affect international economic relations – and particularly Sino-US economic, financial and trade relations. After all, Japan and Korea were quite willing to quickly negotiate a trade deal with the US. Korea may or may not think twice before antagonizing China politically lest it incurs Beijing’s economic wrath. In short, both gunboat diplomacy and geoeconomics will remain a central and prominent feature of international politics for the foreseeable future.