Atlantic Council Strategy Paper Series December 16, 2020

Defend likeminded allies and partners and the rules-based system from China and impose costs on China when it violates international standards

By Jeffrey Cimmino and Matthew Kroenig

In addition to strengthening themselves to compete with China, likeminded allies and partners must be prepared to defend themselves and the rules-based international system from threatening Chinese behavior. Across the security, economic, and governance domains, they should counter China and impose costs on Beijing when it violates international standards.

Defend the global economy

Likeminded allies and partners should defend against China’s unfair economic practices. The economies of likeminded allies and partners and China have become highly interdependent, with significant flows of trade, finance, and cross-national production across their borders. There is currently a debate in the United States about whether the United States should “decouple” from the Chinese economy. Proponents argue that the national security risks of continued economic engagement outweigh the risks, while opponents maintain that the economic costs of decoupling would be catastrophic and could increase the risk of geopolitical conflict. This strategy paper advocates approaching decoupling with a scalpel rather than a machete, and recognizes four discrete categories of economic engagement. First, in areas of economic engagement critical to national security, likeminded allies and partners should restrict economic exchange with China altogether. Second, in areas in which China is engaging in unfair practices, likeminded allies and partners should impose offsetting measures, including tariffs. Third, countries that have become excessively dependent on China economically and, therefore, vulnerable to Chinese economic coercion, should seek to diversity their economic relationships. Fourth, in other domains, likeminded allies and partners can allow free trade to continue.

Prohibit China’s Economic Engagement in Sectors Vital to National Security. Leading countries should prohibit economic engagement with China in sectors vital to national security. This would include, for example, high-technology areas with military applications, such as artificial intelligence and 5G.

The first step is to better understand the scope of the problem and likeminded allies and partners should require companies to publicize ownership structures, foreign-government political affiliations, and funding sources before they are permitted to access certain sensitive sectors. Chinese firms that access Western capital markets should adhere to rigorous transparency requirements. Already, individual Chinese citizens are required to provide five years of employment history to receive a visa to enter the United States. Other leading democracies should adopt similar measures. This existing mechanism for disclosure should be extended to companies and investment funds, mandating that they provide five years of funding history and ownership information before being permitted to operate in the free world. Tracking this information will help government regulators and watchdogs monitor CCP involvement (or attempted involvement) across major sectors of the economy, which will be useful for identifying areas of concern and implementing countermeasures as needed. More robust disclosure requirements will deter Chinese companies from hiding ties to the CCP.

Next, likeminded allies and partners must prohibit Chinese investments in areas sensitive to national security. The United States should more frequently employ the Committee on Foreign Investment in the United States (CFIUS) to review and block Chinese investment in areas of national security concern within the United States. Many leading democracies do not have similar procedures to block foreign investments detrimental to national security, and Washington should work with its allies and partners to develop similar procedures in their countries. These protections are especially important in the area of critical infrastructure. There is a national security risk to allowing the CCP to control the infrastructure of the twenty-first century in the free world. Likeminded allies and partners must also strengthen cybersecurity to prevent outright intellectual property theft from the CCP.

In addition, likeminded allies and partners must take steps to ensure their private sectors are not strengthening Chinese military and technological prowess. They should prohibit the transfer of technology critical to national security from Western to Chinese firms without prior government approval. Western firms that export to China or operate via subsidiaries or similar arrangements in China should be limited in their technology transfers unless approved by their national governments after being subject to an in-depth review process. Moreover, likeminded allies and partners should work toward creating an international technology-control regime that limits technology transfers to China in critical areas.

Finally, likeminded allies and partners must ensure that they do not rely on Chinese suppliers in sensitive national security areas, such as for providing parts for weapons systems. Likeminded allies and partners should only purchase allied-built technology in these areas and they should remove Chinese-built components from their supply chains in areas critical to national security

Impose Offsetting Measures for China’s Unfair Trading Practices. In other sectors, China is systematically preying on the global trading system, gaining an unfair advantage. For many years, leading countries were willing to turn a blind eye to these practices because they hoped that China would eventually become acculturated into the system and follow the rules. That approach did not work, and it is time for tougher measures. In these sectors, such as automobile parts, glass, and paper, likeminded allies and partners should impose countervailing measures against Chinese products. This could include tariffs and quotas.

Reciprocity and fair trade are the name of the game. If China places restrictions on goods or services entering its market, then leading countries should do the same to Chinese goods and services. In taking these steps, leading countries should coordinate their measures. They will be in a stronger position if they are united on one side of the trade negotiating table, with China isolated on the other. The purpose is not to fight an endless trade war, but to make the CCP feel the pain from its continued unfair practices in the hope that it will change course.

Sanctions authorities are an additional tool that can be used to cut off market access to Chinese firms that steal or force transfers of technology from the West. The United States could use existing powers, including the International Emergency Economic Powers Acts, to punish entities that profit from forced technology transfers from US, or allied or partner, firms.

To protect intellectual property, likeminded allies and partners must also devote sufficient resources toward counterespionage investigations. Law-enforcement agencies should collaborate with universities to improve programs for countering illicit technology transfers. Educational and research institutions must be made aware of, and should be encouraged to curtail cooperation with, Chinese research institutes that are affiliated with the Chinese military and intelligence services. The Australian Strategic Policy Institute maintains a database for this purpose. Furthermore, they should improve visa-screening processes to account for potential industrial-espionage risks.

Diversify Economic Relationships Away from China. Even after likeminded allies and partners prohibit exchange in sensitive national security areas and impose offsetting measures, the threat of Chinese economic coercion remains. This danger is especially acute for economies such as South Korea, which are heavily dependent on trade and investment with China. To reduce vulnerability to Chinese economic coercion, these countries should seek to reduce dependence on China.

Countries need not shut down economic exchange with China, but they should seek to diversify their economic relationships, including by renationalizing supply chains and increasing economic engagement with other countries, especially likeminded allies and partners. To offset the likely economic losses from such shifts in economic activity, national and allied governments should seek to provide offsetting incentives. Japan provides a model, as it has promised to subsidize Japanese business that renationalize or alter investments in certain sensitive items from China. Likeminded allies and partners should seek to open their markets and offer investments to countries that are seeking to diversity away from China.

Allow Fair Trade in Other Sectors, as Long as Market Access is Reciprocated. While the above restrictions are necessary, a complete decoupling from China is not. Likeminded allies and partners can allow free trade in other goods and services. China, for example, imports construction equipment from Finland and soybeans from Brazil, while the United States imports inexpensive manufactured goods from China, including toys. Trade in these areas does not pose a national security risk. Chinese unfair trading practices are not fundamentally distorting these markets or allowing the CCP to cheat its way to the commanding heights of twenty-first-century technology. Economic exchange in these and other areas, therefore, can continue unabated.

Portraits of China’s late Chairman Mao Zedong, Soviet state founder Vladimir Lenin and German philosopher Karl Marx are displayed outside an antique shop in the old town in Kashgar, Xinjiang Uighur Autonomous Region, China, March 22, 2017. REUTERS/Thomas Peter SEARCH “XINJIANG PETER” FOR THIS STORY. SEARCH “WIDER IMAGE” FOR ALL STORIES.

Defend domestic politics and societies

Likeminded allies and partners should put in place measures to defend against Chinese interference in their societies, to protect democracy, and to impose costs on the CCP for its gross human-rights violations.

Counter Chinese “Sharp-Power” Practices. Likeminded allies and partners should launch a coordinated campaign to counter Chinese influence operations. In doing so, they should raise public awareness of the threat posed by the Chinese Communist Party, while avoiding the alienation of, and discrimination against, people of Chinese origin. In multicultural democracies, resisting CCP interference is about protecting the rights of all citizens—not least those of Chinese origin—to express their views without foreign intimidation.

The first step is greater awareness. Democratic governments should direct their intelligence agencies to conduct a systematic review of China’s foreign-influence operations in their countries. Likeminded allies and partners should share intelligence on China’s efforts. They should require disclosures of foreign-government funding of think tanks, civil-society institutions, educational institutions, and politicians. For instance, Chinese state-run and state-funded press outlets should be required to label their products with clear disclaimers that the CCP paid for the content. Likeminded allies and partners should also require disclaimers on any foreign-government propaganda.

Next, appropriate punishments against the CCP and those in collusion with it should be designed. Institutions receiving CCP funding may face punishments including the loss of their nonprofit status or corresponding cuts in domestic government support. Confucius Institutes should be shuttered in the free world. While posing as cultural organizations, Confucius Institutes have, in fact, served as an arm of the CCP, intimidating students and controlling what academics can and cannot publish. Likeminded allies and partners should demand reciprocity with regard to the operations of foreign intelligence services and be willing to prosecute or expel Chinese officials who violate national rules. Likeminded allies and partners should coordinate penalties on China if it uses coercive tools such as arbitrary detention of foreign nationals to coerce their home countries.

Impose a Cost on the CCP for its Gross Human-Rights Practices. The free world should hold China accountable for its gross human-rights practices. It should shine a spotlight on China’s ethnic cleansing in Xinjiang and Tibet, its crackdown on democracy in Hong Kong, and its treatment of political prisoners, such as human-rights lawyers, citizen activists, and Falun Gong practitioners. This should be among the priority topics of discussion in public and private diplomatic engagements with the CCP. Officials responsible for these policies should face sanctions, including asset freezes and travel bans for them and their families.

Likeminded allies and partners should also take steps to directly improve freedom and human rights within China. They should provide support to civil-society groups and promote access to independent media and information for the Chinese people. This would begin by prohibiting Western companies from assisting the CCP in erecting the “Great Firewall.” More boldly, it could include cyber operations to disable or circumvent the “Great Firewall.” Likeminded allies and partners should strive to engage with Chinese dissidents and activists without putting them in danger. This could include meeting with Chinese dissidents living in allied and partner countries, highlighting unjustly imprisoned activists and encouraging their release, and using public-diplomacy news outlets such as Voice of America to produce more Chinese-language content that identifies crimes by the CCP and amplifies dissidents’ voices.

Counter the CCP’s Autocracy Promotion. The free world should work together to thwart China’s attempts at stifling freedom and human rights abroad. It should proudly contrast and promote the record of its successful model of open market democracy in comparison China’s authoritarian, state-led capitalism. Likeminded allies and partners should develop a unified approach to highlighting and resisting Chinese efforts to use threats of economic punishment to stifle free speech in the free world that is critical of China. They should impose sanctions on the Chinese individuals and firms involved in exporting advanced surveillance technology to autocratic governments around the world.

Defend the rules-based system

China’s diplomatic practices pose a number of threats to the rules-based system, and likeminded allies and partners should defend the system by countering Chinese disinformation, offering other nations an alternative to Chinse subjugation, and inhibiting a Sino-Russia alliance.

Counter Chinese Disinformation. It is a wonder that anyone takes CCP statements at face value anymore, yet they do. The party has continually lied about the COVID-19 outbreak, its economic growth numbers, its ethnic cleansing in Xinjiang, and much else. Still, concerted CCP public diplomacy and disinformation efforts have proven effective. The free world must systematically counter this disinformation. It should spotlight Chinese dissembling through consistent and patient public diplomacy, at home and abroad.

Offer Nations an Alternative to Chinese Subjugation. Likeminded allies and partners should offer all nations an alternative to Chinese subjugation, without forcing them to make an unwanted choice between Washington and Beijing. As discussed above, they should provide infrastructure investment and other forms of economic assistance so that other nations are not dependent on the CCP for such financing. As will be discussed below, they should make clear that they will develop a military strategy and capability to defend nations from Chinese aggression. They should reinforce the message that likeminded allies and partners are steady and reliable security and economic partners. They should not, however, force countries to choose between the free world or China. Countries are free to make their own decisions, and they can even be encouraged to work with Beijing in areas in which CCP behavior is consistent with agreed-upon international standards.

Prevent a Sino-Russia Alliance. Likeminded allies and partners should be wary of a hostile strategic alignment between China and Russia. Close relations between the world’s top autocratic powers risk destabilizing and undermining the rules-based international system. The United States and its allies should not seek to turn Russia against China, as concessions required from President Vladimir Putin would be too great and his word could not be trusted; rather, they should seek to manage Russia as part of this broader strategy that prioritizes China. They should spotlight areas of actual or potential tension between China and Russia, including Arctic governance, influence in Central Asia, China’s growing nuclear arsenal, and a potential Chinese land grab in Russia’s Far East. Furthermore, they may be able to impose costs on Sino-Russian activities they find undesirable, or take advantage of Russia’s national pride and anxieties about its geographic position to divide Moscow and Beijing.

Soldiers drive M60 tanks on a street as part of a military drill in Taichung, Taiwan, November 3, 2020. REUTERS/Ann Wang

Defend international security

To defend against Chinese security threats, likeminded allies and partners must maintain a favorable military balance of power. For decades, US military primacy in Asia has provided for peace and stability in the region, but that peace may be upended by the rise of Chinese military power and the CCP’s more assertive policies. International-relations theories on the causes of war maintain that it is uncertainty about the balance of power and the balance of resolve that causes conflict. To maintain peace, likeminded allies and partners must remove the uncertainty by making clear their will and capability to defend against Chinese aggression.

The US military will not be able to manage this task on its own, and it will need to coordinate with allies in the region and beyond. The model should not be the United States providing security to vulnerable states, but working with regional countries to contribute to their self-defense. Likeminded allies and partners should conduct joint threat assessments and better coordinate military plans and weapons acquisition.

Since the mid-2010s, likeminded allies and partners have done much to complement and renew the US military position in Asia by promoting initiatives that favor regional stability. Japan’s Free and Open Indo-Pacific Strategy and security-cooperation agenda have propelled Japanese military contributions to regional capacity building. Japan, Australia, India, and the United States have developed the Quad security mechanisms to display the importance of concerted multilateral military cooperation. France and the UK have deployed assets in the region in a proactive effort to support stability, with the UK and the United States challenging China’s excessive maritime claims in the South China Sea. These types of efforts should continue and be reinforced by other likeminded allies and partners.

Commit to Stability in the Taiwan Strait. The defense of Taiwan is central to defending against Chinese aggression in the Indo-Pacific. This is the contingency that is both most likely and most difficult for the United States and its allies. Other US treaty allies in the region, including Japan, Australia, South Korea, and the Philippines, are either unlikely or difficult military targets for the People’s Liberation Army (PLA). The CCP has not ruled out the use of force for Taiwan, however, and the US ability to defend against a Taiwan scenario has worsened as Chinese military capabilities have improved. If China succeeds in suborning Taiwan, it will have a greater ability to project power further into the region, including to isolate Japan. Failure to support Taiwan in a crisis could also deal a grievous blow to the credibility of US alliances and partnerships and the rules-based system globally. If, on the other hand, China can be defeated or deterred from invading Taiwan, then the defense of the rest of the region will be made easier.

A Chinese attack on Taiwan need not be a large-scale invasion. Beijing could also seek to coerce Taiwan into submission through cyberattacks, a maritime blockade, occupation of outlying islands, squeezing Taiwan’s airspace, targeted conventional missile strikes, commando raids, or other grey-zone tactics.

Likeminded allies and partners should end a policy of ambiguity for Taiwan and clearly commit to maintaining the status quo in the Taiwan Strait. The current ambiguity is a recipe for miscalculation. If the CCP believes it can attack the island and get away with it, it might be tempted to do so, resulting in a major war. Likeminded allies and partners should remove any such doubt and eliminate the possibility of miscalculation. Beijing needs to receive a signal that aggression against Taiwan would rupture its relations with the free world and profoundly diminish China’s own security. The United States should commit to the defense of Taiwan from outside aggression, and regional and global allies and partners should support this commitment. This might be a difficult step for many national governments, but it could greatly contribute to stability in the Indo-Pacific. Those nations that cannot commit military forces can seek to deter Chinese aggression against Taiwan by making clear threats of economic sanctions or other punishments—and the provision of economic, intelligence, and other non-combat support for Taipei—should Beijing cross the threshold of conflict. Other nations are well within their rights to protect Taiwan as a dynamic part of the global economy and a successful democratic society, through helping Taipei to, for example, counter cyber assaults, disinformation, and blockade operations. China will be much less likely to attack if it is confronting a near certainty of prolonged conflict with the free world.

To reinforce these efforts, likeminded allies and partners should increase cooperative activity with Taiwan, consistent with their efforts to bolster a revitalized rules-based international system. These activities can include military cooperation on humanitarian assistance, disaster relief, and search and rescue. It should also include multilateral initiatives in which Taiwan is given observer status. Taiwan can make a positive contribution to many global challenges if given greater opportunity, including for global public health and the global economy.

At the same time, likeminded allies and partners should also be clear that they would not tolerate, and would actively resist, unilateral action by Taiwan to change the status quo, such as by declaring independence. In sum, the purpose of the above efforts is to maintain stability in the Taiwan Strait.

Invest in Strategic Deterrence for the 2030s. The 2018 National Defense Strategy of the United States of America declares that the Pentagon will deter China by maintaining a favorable balance of power in the region. While much attention has been given to what that means at the conventional level, there has been less focus on the strategic-forces balance. China has a secure second-strike capability and strategic nuclear forces that, according to the Defense Intelligence Agency, will double in the coming decade. This will make the US and allied homelands more vulnerable to a Chinese nuclear attack. This increasing vulnerability could call into question the US policy of extended nuclear deterrence, weakening deterrence of adversaries and assurance of allies. Moreover, China has a clear advantage in short- and intermediate-range nuclear forces in the region. The United States and its allies do not have any nonstrategic nuclear weapons deployed in theater. It is hard to argue that Washington and its allies and partners can maintain a favorable balance of power if there is stalemate at the strategic nuclear level and China has a theater nuclear advantage.

The United States should strive to maintain its quantitative and qualitative edge in strategic forces, to ensure it can continue to extend deterrence across the Indo-Pacific. Washington should invest in the strategic forces of the future. It should continue to modernize the nuclear triad and pursue the low-yield supplemental capabilities called for in the 2018 Nuclear Posture Review. It should strengthen homeland and regional missile defenses, including with next-generation capabilities, including space-based sensors, directed energy, and the study of space-based interceptors. It should increase investments in hypersonic and intermediate-range missiles and reconsider whether those capabilities should include a nuclear-capable option. In addition to deterring China, a robust US nuclear posture will also discourage allies and partners from pursuing their own nuclear weapons, thus curbing nuclear proliferation. As will be discussed below, likeminded ally and partner diplomats should also seek to constrain China’s strategic buildup through arms control and other methods.

Develop a Combat-Credible Posture in the Indo-Pacific. The US way of war since the end of the Cold War is obsolete. China has gone to school on the United States and developed an effective strategy and capabilities for blunting US power projection. As the 2018 National Defense Strategy Commission report ominously warned, a major war with China is possible and the United States might lose.

To correct this problem, likeminded allies and partners need to develop a combat-credible posture for the Indo-Pacific. The United States, its regional allies and security partners, and other global military powers, such as Britain and France, should spearhead these efforts. Fortunately, as the status-quo powers in the region, likeminded allies and partners must only play defense and be able to prevent a Chinese invasion of neighboring states. This is easier than going on offense. They must design a military strategy and the capabilities to deter and, if necessary, defeat China in a major war in the region. They need to develop new operational concepts for a way of war that will be effective against Chinese A2/AD capabilities. This could include dispersing capabilities to make US forces and bases less vulnerable to a Chinese attack. They should increase their firepower in the region to destroy Chinese ships and anti-ship missiles, including with attack submarines and hypersonic and intermediate-range missiles. They should work with vulnerable states such as Taiwan to develop their own A2/AD capabilities, such as mines and anti-ship missiles, to make them impregnable to Chinese invasion.

Finally, likeminded allies and partners must invest in the military technologies of the future force to ensure that they maintain their edge over China. This includes increased investments in artificial intelligence, unmanned systems, quantum technology, hypersonics, directed energy, and additive manufacturing.

Defend against Hybrid Threats. Some of the most difficult challenges from China fall below the threshold of armed conflict in the “grey zone.” Likeminded allies and partners must prioritize cyber resilience, especially for critical infrastructure. They should develop defensive and offensive cyber capabilities and integrate them into their military postures. The aforementioned D-10 technology alliance should coordinate on monitoring and responding to Chinese cyber attacks. Through joint statements, the United States and its allies can make it clear to China and other adversaries that a cyber attack on civilians or critical infrastructure will be met with an equally devastating counterattack.

Military coercion in the South China Sea by China should also be countered. Likeminded allies and partners should increase funding for the Southeast Asia Maritime Security Initiative, and a broad range of global powers should continue freedom-of-navigation operations.