Informal economic sanctions: the political economy of Chinese coercion during the THAAD dispute

Abstract

Contemporary economic coercion increasingly features the use of 'informal' sanctions-government-directed disruption of international commerce that is not enshrined in official laws or publicly acknowledged as coercive, yet which seeks to impose costs on key firms or industries in a target country in order to achieve strategic objectives. We investigate how 'informality' mediates the link between economic interdependence and coercive power, leveraging the most significant contemporary case of informal sanctions: China's apparent retaliation against South Korea's deployment of the terminal high-altitude area defense (THAAD) missile system between 2016 and 2017. We offer three contributions. First, we introduce a new qualitative dataset that carefully documents extensive evidence of the South Korean actors and industries that experienced disruption, the mechanisms through which disruption occurred, and its apparent impacts. Second, we use that evidence in a theory-testing exercise, evaluating the utility of hypotheses from the extant literature on formal sanctions in explaining how informal sanctions are used, and which industries they target. Finding the established wisdom offers some insight but only general expectations, our third contribution is theory development: we use the THAAD case as a heuristic to conceptualize informal economic sanctions, and specify two new variables-regulatory availability and opportunism-that mediate their use and impacts.

Economic MAD as Middle Powers’ Strategic Tool in the Great Power Rivalry

“…Importantly, the Korean semiconductor industry, as well as petroleum and chemical exports, remained largely unaffected during 2016 and 2017, since China relies heavily on Korea for these specific products. Semiconductor exports from companies such as SK Hynix and Samsung actually increased during this period, as did bilateral trade as a whole (Lim and Ferguson 2021;Jung 2017). These economic sanctions were primarily informal in nature: the most common form of coercion was the fomentation of boycotts, with Chinese consumers encouraged to actively avoid Korean products, including cosmetics, cars and food products.…”

“…These measures began in August 2016, and continued through to October 2017. The economic measures targeted a variety of Korean goods, but were primarily focused on the tourism industry, specific Korean companies (such as Lotte, Hyundai and Kia), Korean cultural exports (also known as Hallyu or 'Korean wave' products) and certain exports such as electric vehicle batteries (Lim and Ferguson 2021). Importantly, the Korean semiconductor industry, as well as petroleum and chemical exports, remained largely unaffected during 2016 and 2017, since China relies heavily on Korea for these specific products.…”

Struggle for coalition‐building: Japan, South Korea, and the Indo‐Pacific

“…Although the deployment aimed to counter North Korea's missile threats and South Korea had long discussed a possible deployment since 2014, China raised concerns about the US and South Korean decision of the deployment and diplomatically protested against South Korea because of its negative security implications toward China's nuclear capabilities, which the United States considered were exaggerated (Meick & Salidjanova, 2017). China also conducted "informal economic sanctions," such as the suspension of K-pop-related events, the ban of selling South Korean products, and shutdown of group travels to South Korea, which disrupted South Korea's economy (Lim & Ferguson, 2021). In response, South Korea accommodated China's pressure by adopting "three no's," namely (1) "no additional THAAD deployment," (2) "no participation in the US's missile defense network," and (3) "no establishment of a trilateral military alliance with the US and Japan" (Hankyoreh, 2017).…”

Assessing the Ability of a “Free and Open Indo-Pacific” Strategy: To Maintain the Status-Quo in the Western Pacific and Indian Oceans

“…This event clearly showed the economic vulnerability and dependence of South Korea on China. (Lim &Ferguson, 2019) Therefore, initially, South Korea displayed its support for this strategy in this region as was seeking multilateral initiatives which had economic orientations.…”