CEIAS CONSIDERS: Is China winning its trade war on Lithuania?

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And will China win?

In November, the small Baltic state of Lithuania put itself in Beijing’s line of attack. It quit the China-led “17+1” forum and announced that Taiwan’s de-facto embassy in Vilnius would be renamed the “Taiwanese representative office”, dropping the customary reference only to Taipei. Beijing opposes any international mention of Taiwan. It considers the self-rule island a breakaway province of the mainland. In response, China imposed hefty trade sanctions on Lithuania. In December, Lithuanian exports to China fell by 91.4 percent, compared to a year earlier, according to Chinese customs data. The sanctions also extended to goods containing any Lithuanian-made parts entering China from any country, which has impacted German exports. This week, the EU took the case to the World Trade Organization. Reports suggest that others European are pressuring Vilnius to reverse course on the renaming of Taiwan’s representative office, which some Lithanuian officials say was perhaps a mistake. Yet, other EU states, most recently Slovenia, have said they might follow Lithuania’s lead and make similar gestures to improve relations with Taiwan.

But where is all of this heading? “CEIAS Considers” asked regional experts for their thoughts on whether China will win its battle against Lithuania and what that means to the rest of Europe.


Richard Q. Turcsanyi

Program Director at CEIAS

@RQTurcsanyi

I think China surprised many when it decided to put pressure on Lithuania indirectly through German companies with the demand not to include Lithuanian value-added products in their exports to China. Previously, it had been assumed that China’s leverage vis-a-vis Lithuania was small and no one expected that China would be willing to endanger entire trade and political relations with Germany and the EU.

In the short term, it seems China has achieved its goals: it has managed to insert the feeling of uncertainty and even disunity. Various Lithuanian actors now discuss whether the China-policy was designed wisely, especially the move to name the “Taiwan” representative office. There is now an ongoing blame game across Europe of how much support Lithuania should get from the EU institutions and other member states. So far it seems that the companies are, at least to some extent, willing to accommodate China’s concerns and demands – and it is difficult for the EU or the national governments to force them to do otherwise.

In the long term, however, China’s unusual boldness will be noted and it would be a factor in the further development of relations. I can imagine that various companies would be more cautious in the future in considering whether to expand their business to China. Moreover, this pressure would further promote those political forces in the EU who support more “tough” stances on China. In short, China will be again seen as a less trustworthy partner.


Matej Šimalčík

Executive Director of CEIAS

@MatejSimalcik

The evolving Sino-Lithuanian conflict and the tools PRC uses to exert pressure on Lithuania present a fundamental shift in how China is handling the protection of its ‘core interests’ against purported infringements by European states.

Traditionally, China would have reacted mostly in a rhetoric fashion and with freezing of political relations. In the economic spheres, only symbolic sanctions would be used (e. g. Norwegian salmon ban, cancellation of Czech piano purchases). In weaponizing Lithuania’s position in global value chains and the country’s overall indirect exposure to China, we can observe a qualitative change in Chinese reaction, which represents almost a full-frontal attack on the Lithuanian economy.

It must be noted, that several other EU members find themselves in similar structural positions via-a-vis China. With low direct economic interactions but relatively high indirect exposures, Slovakia, Czechia, and others in the CEE are now keenly observing how the situation in Lithuania will play out. However, this position also means that they should lend strong support to Lithuania, to jointly push within the EU on China to back down from the dispute. Otherwise, they may find themselves on the receiving end of China’s economic stick in the future.

To answer the question of whether China will win the battle against Lithuania, we must consider the dual nature of Chinese foreign policy, which serves both international and domestic purposes. While the fierce reaction may fulfill the short-term demand of domestic nationalists, in the long term it will damage China’s reputation as an economic partner, thus further driving the ongoing discussions about (full or partial) decoupling. This dichotomic nature of Chinese foreign policy is one of the main factors inhibiting the effectiveness of Chinese foreign policy.

Of course, a lot now depends on what next steps will be taken by the direct participants on the dispute as well as indirect stakeholders. Initiating the WTO proceeding by the EU was a smart move, as it moves the dispute to a different forum, which allows for a more constructive discussion on the issue.

Nevertheless, the current episode should serve as a warning to the EU that it needs to pick up the pace of adopting the necessary tools which would allow it to protect the member states and the single market as such against hostile actions of outside actors.


Jakub Janda

Director of European Values Center for Security Policy based in Prague

@_JakubJanda

China is losing Europe in a strategic way. After Chinese attacks on countries like the Czech Republic or Sweden, escalation against Lithuania and pressure on German companies is a new record-setting offensive operation.

China proves to European business and political leaders that it is not a stable market and it is willing to manipulate trade for political purposes in a brutal way. It makes all European business links with China a possible target of Chinese government tools of blackmail.

The current Chinese actions against Lithuania and German companies are a textbook example of how brutal tactics lead to strategic defeat. If China really prioritizes brutally punishing one Baltic EU and NATO member state over their symbolic actions on Taiwan, China is killing its most important geostrategic asset for the European theater – the lovely promises of major economic opportunities in China.

On the European side, EU countries should demand the EU27-China summit at the highest level and offer an ultimatum to Xi – if you don’t stop with illegitimate WTO rule-breaking pressure on the European internal market, the EU will deploy reciprocal sanctions on China until the attack is not ceased. Yet, this is unlikely to happen as Germany is the best ally of the Chinese Communist Party in Europe, especially the German Social Democratic Party which has the Chancellor post.

Currently, Germany is not pressing China with all of its political and economic power to make China stop its blackmail of German companies. Instead, Germany is betraying the basic principles of EU cooperation and stabbing Lithuania in the back by not defending it against external attack. In Central, Northern, and Eastern Europe, many foreign and security policy practitioners have lost trust in Germany as an ally, after they see how the German priority clearly is to appease the Chinese Communist Party and not to really defend its ally within the EU and NATO.