Commentary on Political Economy

Friday 7 January 2022

 China Takes Lithuania as an

Economic Hostage

By Elisabeth Braw

Beijing has developed a reputation for blocking imports from

countries it wants to punish. Australian wine became a target last

year. Now China is punching back at Lithuania, which recently

allowed Taiwan to open a representative office in Vilnius. But here’s

the new twist: China is holding up not only Lithuanian imports, but

all imports that include Lithuanian parts. The effects are rippling

across Europe.

In 2020 Lithuania exported goods worth $350 million to China—an

increase over previous years but peanuts in overall trade. Lithuania

has long imported far more from China than vice versa; last year,

about four times as much. So Lithuania’s government perhaps

calculated that the country’s economy could handle whatever

retaliation China inflicted for the gesture to Taiwan.

But the Lithuanians probably didn’t anticipate a Chinese attack on

global supply chains. “We now know of many cases where imports

from Lithuania and the EU are blocked in Chinese ports, and the

number is increasing every day,” Valdis Dombrovskis, the European

Union’s trade commissioner, told Germany’s Die Welt newspaper

shortly before Christmas. “Apparently the Chinese customs authority

doesn’t process goods from other EU member states if they contain,parts made in Lithuania.”

Chinese Foreign Ministry spokesman Zhao Lijian has denied that

Beijing is blocking imports containing Lithuanian components, but

goods are still stuck or severely delayed, with volumes growing

rapidly. German automotive suppliers have said their cargo is

languishing in Chinese ports.

China’s suspension of salmon imports from Norway after a Chinese

dissident was awarded the Nobel Peace Prize, and of Australian wine

after Canberra called for an investigation into the origins of Covid￾19, were serious but harmed only those countries. Targeting global

supply chains to punish a country is an extremely potent weapon. It’s

one that China—a power player in the global economy— can deploy

in ways that the Soviet Union never could.

The punishment “is putting multinational companies under pressure.

Now they’re trying to push the Lithuanian government to rename the

Taiwanese office,” Vidmantas Janulevicius, president of Lithuania’s

industrialists’ association and chairman of the solar-panel

manufacturer BOD Group, told me. The German-Baltic Chamber of

Commerce has warned Vilnius that German subsidiaries are at risk.

Mr. Dombrovskis says that if the port stoppages don’t end, the EU

will take the case to the World Trade Organization. But that won’t

accomplish much, judging from past WTO complaints against China.

Beijing will still be able to harm economies and companies all over

the world.Companies will plead with the offending country to accommodate

Beijing, as will governments whose home companies become

collateral damage. In Germany, Siemens CEO Roland Busch has

warned Foreign Minister Annalena Baerbock not to conduct

“confrontational foreign policy” with China. In the U.S., the Uyghur

Forced Labor Prevention Act, which would bar goods made with

forced labor in Xinjiang region from entering America, passed the

House last month. If it becomes law, U.S. companies should brace


If companies have to worry about being punished because a

government has done something that displeases another government,

they’ll see little choice but to limit their foreign operations. That

means reducing dependence on China, both as a manufacturing

location and an export market. That will cause revenues to drop, but

if even the German automotive industry can’t protect itself against

capricious revenge, Chinaheavy operations will simply be too risky.

China’s punishment of Lithuania is a wake-up call for companies and

countries alike. For years, Mark Zuckerberg made “companies over

countries” Facebook’s unofficial mantra. But when regimes use

companies as proxy targets, such Davos thinking looks passé—and


Suddenly borders matter more than they did 10 or even two years

ago. “Even simple screws are connected with China, because they’re

not manufactured in Europe anymore,” Mr. Janulevicius said. “It was

a mistake for Europe not to protect strategic sectors such assemiconductors. We need to produce locally or otherwise we’ll have

a situation like this many times over.” The U.S. made the same

mistake. Free-trading nations may soon have no choice but to bid a

partial farewell to globalization.

Ms. Braw is a fellow at the American Enterprise Institute.

Its trade retaliation over Taiwan is wreaking havoc with global supply


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