Tuesday, November 30th, 2010

The Price of Angering China

As China’s economic clout has grown, so has its propensity to throw its weight around. It stopped exports of rare earths to Japan when Japan arrested the captain of a Chinese fishing boat that rammed a Japanese coast guard vessel near disputed islands. It threatened Norway with unspecified repercussions after the Nobel Prize was awarded to the jailed Chinese dissident Liu Xiaobo.

New research by economists at the University of Goettingen has found a way to determine more precisely the price of angering the government in Beijing. It found that countries whose leaders have received the Dalai Lama —a dangerous agitator for the independence of Tibet, in the view of Chinese leaders— subsequently suffer a drop of exports to China of between 8 and 16 percent. The penalty is proportional to the rank of the official receiving Tibet’s exiled leader. And it tends to disappear after two years.

Interestingly, the use of trade as a weapon appears to be a new tactic. The study spans nearly two decades, from 1991 to 2008. But the export penalty only appears in the era of Hu Jintao, who became China’s President in 2003.

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