It is Time for a Values-Based Economic "NATO"

Opinion

It is Time for a Values-Based Economic “NATO”

March 29, 2023 • by Dr. Jianli Yang

INTRODUCTION

The past two decades have witnessed a severe “democratic drought” worldwide. Not only have established democracies struggled to ensure the healthy functioning of democratic processes and institutions at home, but democracy is also losing its appeal to authoritarian and semi-authoritarian states abroad. According to a new report by the U.S.-based nonprofit Freedom House, every year for the past 17 years, significantly more countries have experienced declines in political rights and civil liberties than have experienced gains. Since 2015, this ominous trend has taken a sharp turn for the worse: 2015–19 was the first five-year period—since the start of the third wave of democracy in 1974—in which more countries abandoned democracy (twelve) than transitioned to it (seven). In 2022, 35 countries lost ground in political rights and civil liberties, while 34 countries improved, marking an overall deterioration in global freedoms.

Today, democracy remains in retreat around the world, although Ukraine’s resistance to Russian aggression shows its resilience. It is imperative to create a new wave of democratization to reverse the overall international decline.

One of the major causes of the global democratic decline is China. Over the past three decades, China has achieved rapid economic growth under a largely stable one-party communist regime, becoming the world’s second largest economy and rapidly closing the gap with the United States in the fields of science, technology, and national defense. China has greatly expanded its influence on the international stage, offering the world’s authoritarian states an appealing alternative to the notion that the only path to modernity is liberal democracy. The dominant international order of the post-World War II era is being challenged as never before. According to several recent surveys, the majority of African and Middle Eastern countries favor China’s role in the world. In recent years, China’s influence has not only influenced and controlled less developed countries and regions through projects such as the Belt and Road Initiative, but has also penetrated democracies, adversely affecting democratic ways of life and exerting increasingly obvious manipulation of international organizations such as the United Nations.

On December 9–10, 2021, U.S. President Joe Biden hosted the first of two Summits for Democracy, bringing together leaders from government, civil society, and the private sector to set a forward-looking agenda for democratic renewal and to take collective action to address the greatest threats facing democracies today. President Biden rightly recognized that the future fate of the world depends on the outcome of the struggle between democracy and tyranny, saying “Democracy doesn’t happen by accident, we have to defend it, fight for it, strengthen it, renew it.” Although this is an important step, the leaders of the democratic countries and the leaders of civil society represented at the summit failed to propose a concrete and feasible program of collective action.

By now, the need for principled solidarity should be obvious. Standing alone, even the United States has great difficulty preventing the Chinese Communist Party—the one-party totalitarian regime of the People’s Republic of China (PRC)—from undermining our democratic values. Dependence on the PRC, combined with financial incentives, has the perverse effect of shifting everything—from domestic policymaking to the behavior of private institutions like Disney or the NBA, to the tenor of discussions on American campuses—away from democratic principles.

Both major American political parties rightly recognize this as a problem, and there has been little partisan disagreement over, for example, targeted sanctions to address abuses Chinese Communist Party (CCP) abuses in Hong Kong, Xinjiang, and Tibet. Nor have prominent Democrats criticized the current administration’s aggressive responses to the national security threats posed by the success of PRC-based technology companies beholden to the CCP.

The problem is that individual democracies are still largely left to their own devices, at least formally, when it comes to economic warfare arising from fundamental value conflicts. Security alliances exist, but they were built to deal with military coercion, not economic coercion.

To address this problem, I propose a values-based economic NATO for the world’s democracies.

CHINA HAS BECOME INCREASING ADEPT AT LEVERING ECONOMIC POWER TO BEND DEMOCRACIES TO ITS WILL

I have been involved in the human rights and democracy movement in China since before the Tiananmen Square massacre in 1989, and I have been fully engaged in this cause from my base in the United States ever since. Decades of experience in advocating and seeking international support for the advancement of human rights and democracy in China, both in the United States and in other democracies, do not lead me to naively believe that democracies will always be able to uphold their founding principles on the issue of human rights. Even for political leaders in the democratic world, there is often a wide gap between their professed values and the concrete practice of their foreign policy. If all or most of the world’s democracies were able to uphold their values, it would not be the case that the world’s leading human rights abusers, such as China, Russia, and Cuba, would not receive enough votes in the UN General Assembly to become members of the UN Human Rights Council, whose human rights record, both domestically and internationally, is clearly substandard, as stipulated in the UN resolution that created the Council. I have also found that while the reasons why democracies fail to stand up for their principles on human rights issues are complex, there is one reason that plays the most direct, practical, and pervasive role, and that reason is simple: “money talks.” China is using its new-found economic power to coerce, lure, and infiltrate democracies and international organizations, making it brutally difficult for the democratic world on human rights issues and other issues related to fundamental value conflicts with the democratic world, often forcing democracies to back down from their value positions. Although China has rarely used military coercion during the post-Cold War period, it has become increasingly adept at using non-military coercion, including diplomatic and economic power.

In 2010, the Oslo-based Nobel Peace Prize Committee awarded the Nobel Peace Prize to imprisoned Chinese dissident Liu Xiaobo. (I represented Liu Xiaobo’s family and colleagues at the Nobel Peace Prize ceremony that year.) Although the committee is only geographically based in Oslo and the prize is independent of government decisions, Norway still paid a steep price for awarding the Peace Prize to an outspoken and internationally-celebrated Chinese dissident. The humiliated CCP canceled exchange visits between the two countries, broke off trade negotiations, and jeopardized negotiations on bilateral free trade agreements. After China imposed sanctions on Norwegian salmon exports to China, Norway’s market share in China for fresh salmon, one of the country’s mainstay exports, fell from about 90 percent in 2010 to under 30 percent in the first half of 2013. Norwegian companies, especially state-owned and partially state-owned enterprises, had difficulty obtaining contracts and operating in China.

The sanctions continued after Xi Jinping took the power in 2012. Norway eventually relented. In May 2014, the Norwegian government publicly announced that Prime Minister Erna Solberg would not meet with the Dalai Lama. In December 2016, the foreign ministers of China and Norway met in Beijing and signed a joint declaration. “Relations have deteriorated,” the declaration said, “due to the Nobel Peace Prize award and events connected to the Prize. Norway “is fully conscious of the position and concerns of the Chinese side and has worked actively” to restore relations. Norway “fully respects China’s development path and social system” and is committed to the one-China policy. The statement adds that the Norwegian government “attaches high importance to China’s core interests and major concerns” and “will not support actions that undermine them.”

China halted ministerial meetings with British counterparts in May 2012, when Prime Minister David Cameron met with the Dalai Lama and declared that relations would not be restored until Britain “stops supporting anti-Chinese forces.” The snub prompted intense debate at the highest levels of the British government over the UK’s ties with China. At a private meeting attended by Cameron, then-Chancellor George Osborne notably told a group of ministers that Britain’s relationship with China was of such economic and geopolitical importance that British sensitivities about human rights could not be allowed to complicate matters. Osborne won the argument and led a five-day trade mission to China in October 2013, paving the way for Beijing to invest in Britain’s new generation of nuclear power plants and setting the stage for Prime Minister David Cameron’s visit to Beijing that December. Heeding Osborne’s advice, Cameron distanced Britain from the Dalai Lama during his trip to China. His visit, on which he was accompanied by 100 businesspeople, focused on fostering trade relations with China, the global economic powerhouse. The UK “correct[ed] the error” as Beijing urged, although many human rights groups were not be pleased with the new stance.

The UK is not alone. The Chinese government frequently threatens that meetings between its trading partners’ officials and the Dalai Lama will be met with hostility and ultimately damage trade relations with China. This has happened to numerous countries—most notably France and, more recently, Mongolia.

In recent years, China’s brutal persecution of the Uyghurs, a Muslim ethnic minority, has received widespread international attention. The United States and other democracies have publicly condemned the PRC for exploiting and committing genocide against the Uyghurs in Xinjiang. In December 2021, the U.S. passed the Uyghur Forced Labor Prevention Act, which targets the CCP’s oppression and genocide against the Uyghurs, and imposed trade sanctions on China. Yet all Muslim countries have caved to China for economic reasons and are afraid to stand up for their Muslim brothers and sisters in Xinjiang. Setting authoritarian states aside, Muslim-majority democracies such as Indonesia, Malaysia, and Bangladesh are also tight-lipped about the CCP’s atrocities.

As the above examples show, China’s pattern of using economic means to achieve its goals on issues involving value conflicts has continued from the Hu Jintao era to the Xi Jinping era. In fact, it has intensified under Xi.

THE RECENT EMERGENCE OF MUTUAL SUPPORT WITHIN THE DEMOCRATIC WORLD TO COUNTER CHINA’S ECONOMIC COERCION IN VALUES-BASED CONFLICTS IS A STEP IN THE RIGHT DIRECTION

In recent years, several democracies have been economically suppressed by China for supporting democratic Taiwan or for calling for international investigations into the origins of the COVID pandemic. So far, none have succumbed. Below we analyze how they have responded, which is instructive for my proposed framework for the democratic world’s response to China’s economic retaliation over conflicting core values.

CASE 1

In September 2017, Czech Senator Miloš Vystrčil (who has since been elected president of the Senate) visited Taiwan, where he declared in a speech: “I am Taiwanese.” This symbolic support of Taiwan by the Czech Republic angered Beijing. Earlier that year, after getting wind of possible visits to Taiwan by Czech lawmakers, China’s embassy in Prague sent a letter to the Czech president’s office threatening to retaliate against leading Czech companies if senior Czech officials went ahead with planned visits to Taiwan. The letter said companies such as automaker Škoda, consumer lender Home Credit Group and piano manufacturer Petrof would suffer if Czech lawmaker Jaroslav Kubera visited the self-ruled island as planned. Shortly after Vystrčil’s Taiwan trip, a Chinese buyer canceled a 5.3 million Czech koruna (about $230,000) order from Petrof.

Prague was under immense pressure because the Czech Republic’s gross domestic product would fall by about one percent if all of the country’s exports to China were halted.

So far, however, Prague has resisted the pressure. Not only have the Czech government and people stood firm on principle, but some of the steps taken by Taiwan and the Czech Republic have played an important role in mitigating the economic damage. While Taiwan’s President Tsai Ing-wen has called on Taiwanese citizens to buy Czech pianos, the Czechs have also practiced self-help.

After the Chinese customer canceled the purchase order with Petrof, Czech billionaire Karel Komárek stepped in and bought the rejected pianos. Czech entrepreneurs in Vystrčil’s delegation returned home with several deals signed with Taiwanese business partners, and Prague and Taipei are considering a direct flight agreement. Taiwanese companies in the Czech Republic—Foxconn consistently tops the rankings—have helped with technology transfer expertise and in creating local job creation.

CASE 2

China and Australia signed a free trade agreement in 2015, cementing a strong historical trade relationship based on China’s demand for Australian iron ore for its industrial machinery. However, the relationship began to show signs of strain after Australia became one of the first countries to raise national security concerns about Huawei and introduced foreign interference laws specifically to address the threat posed by China. Bilateral trade relations reached a low point in 2020 when Australia called for an independent investigation into the origins of the COVID-19 pandemic, which China saw as a direct attack on its reputation—the latest in what the Chinese government has described as a “series of misguided actions” by Canberra. (Mounting evidence now lends credence to the once-taboo “lab leak” hypothesis—namely, that the pandemic was most likely caused by the leak of a genetically-modified coronavirus from the Wuhan Institute of Virology—with dire health, economic and social consequences around the world.)

In the months that followed, Chinese authorities suspended import licenses for major Australian beef producers, ordered some power plants and steel mills to stop buying Australian coal, and imposed punitive tariffs on barley and wine. Later, in March 2021, China announced that it would extend the 220 percent anti-dumping duty imposed on Australian wine for another five years.

Taiwanese President Tsai Ing-wen urged Taiwanese consumers to buy more Australian wine. Meanwhile, Canberra was actively looking for a way out. In 2022, it signed the India-Australia Economic Cooperation and Trade Agreement with India, in which the two countries mutually agreed to cut tariffs on goods by more than 85 percent to reduce their dependence on China.

CASE 3

Taiwan’s economic and trade relations with China have become increasingly close over the past two to three decades, with Taiwan’s exports to China accounting for 43.8 percent of its exports by the end of 2020 and a trade surplus of more than $170 billion, making it easy for China to use this advantage against the democratic, self-governing Taiwan, which Beijing views as a renegade province.

In late February 2021, in the face of Taiwan’s growing alignment with the West (in terms of democratic values, its response to COVID-19, global supply chain issues, geopolitics, and more) and consequent rise in international status, Beijing sent a strong warning signal to Taipei by suddenly announcing the suspension of pineapple imports from Taiwan on the eve of China’s annual “Two Sessions.” (Six months later, the suspension was extended to Taiwanese sugar-apples.) News of China’s import ban on Taiwanese pineapples immediately sparked an outcry in Taiwanese society. In response, Taiwanese Foreign Minister Joseph Wu launched a “Freedom Pineapple” campaign on Twitter, urging the public to buy Taiwanese pineapples. President Tsai Ing-wen even personally visited the southern city of Kaohsiung to publicly support the farmers by eating pineapples in front of the cameras.

Various countries and regions friendly to Taiwan, including Japan, Australia and Hong Kong, increased their orders of pineapples from the island nation. In interviews, Japanese consumers remarked that they cannot bear to see China bully Taiwan, so they must support and cheer for Taiwan. Former Japanese Prime Minister Shinzo Abe endorsed Taiwanese pineapples on his personal Twitter account, sharing a photo of himself with five Taiwanese pineapples. Taiwanese President Tsai retweeted and replied in Japanese, saying, “If five isn’t enough, I’ll send you more!”

On August 2, 2022, then-Speaker of the U.S. House of Representatives Nancy Pelosi visited Taiwan, prompting a fierce response from mainland China. In addition to launching live-fire military drills around Taiwanese waters and airspace, Beijing also launched a series of economic sanctions against Taipei. Specifically, the Chinese government suspended the export of natural sand to Taiwan and the import of grapefruit, lemons, oranges, chilled scallops, and frozen mackerel from Taiwan. China also suspended importation from Taiwan of 2,066 products (including tea and honey) from more than 100 processed food companies.

CASE 4

In May 2021, Lithuania—a small Baltic democracy with a population of less than three million—withdrew from a diplomatic forum of 17 countries from Eastern and Central Europe plus China (17+1) to promote Xi Jinping’s “One Belt, One Road” initiative, a multibillion-dollar infrastructure project. In July 2021, Lithuania announced that it had accepted Taiwan’s request to open a “Taiwan Representative Office” in Vilnius, the Lithuanian capital. Taiwan’s offices in countries without formal diplomatic relations are usually established under the name of “Taipei,” such as the Taipei Representative Office in the United Kingdom and the Taipei Economic and Cultural Representative Office in the United States.

Viewing these as provocative actions by Lithuania, Beijing recalled its ambassador from Vilnius in August 2021. (Lithuania responded in kind by recalling its ambassador from Beijing the following month.) About a year later, on the evening of August 12, 2022, the official website of China’s Ministry of Foreign Affairs stated that Agnė Vaiciukevičiūtė, Lithuania’s deputy minister of transport and communications, had visited Taiwan in violation of the CCP’s one-China principle and interfered in the PRC’s internal affairs. In response, China sanctioned him personally, suspended contact between the two countries’ respective ministries of transport and communications, and ended all exchanges and cooperation in bilateral road transportation. China stopped regular freight trains to Lithuania, making it almost impossible for many Lithuanian exporters to sell their goods in China. Despite its small size, Lithuania is surprisingly large in China’s considerations, partly because of its role as a transit route for trains carrying goods from China to Europe. China believes that Lithuania played a crucial role in the collapse of the Soviet Union, and the CCP has studied this history in hopes of preventing similar centrifugal forces at home. After Lithuania became the first Soviet republic to declare independence from Moscow in 1990, the breakaway republic was led by Vytautas Landsbergis, the grandfather of current Lithuanian Foreign Minister Gabrielius Landsbergis.

The disruption in the supply of Chinese-made glass, electronic components, and other items needed by Lithuanian manufacturers hit the Lithuanian economy even harder. About a dozen companies that had relied on Chinese goods received nearly identical letters from Chinese suppliers claiming that the power outage had made it difficult to fulfill orders. Lithuania’s laser industry, one of the country’s most sought-after industries, had 30 percent of its exports going to China and faced enormous pressure.

In November 2021, Lithuania withdrew from China’s “17+1” cooperation bloc with Central and Eastern Europe. Beijing’s sanctions against Lithuania also left a bitter taste in the mouths of the Baltic states of Estonia and Latvia. In August 2022, Estonia and Latvia announced their exit from the cooperation group, reducing it to “14+1.”

Since then, Taiwan has encouraged joint ventures between its semiconductor companies and Lithuanian laser companies. In addition, Lithuanian companies doing business with Taiwan can also apply for funding from the country. Taiwan announced the establishment of a $200 million Central and Eastern European Investment Fund (CEEIF) and $1 billion in financing to promote bilateral cooperation between Taiwanese and Lithuanian firms. So far, Taiwan has invested a lot of money and political capital to help Vilnius stay the course.

In February 2022, Lithuanian Foreign Minister Gabriel Landsbergis traveled to Canberra to open Vilnius’ first embassy in Australia. He met with Australian Foreign Minister Marius Payne, and they agreed to increase bilateral cooperation on the challenges posed by Chinese pressure on both countries.

The entire European Union (EU) has rallied behind Lithuania. French President Emmanuel Macron pledged to vigorously pursue countermeasures against China’s economic aggression toward member-states during his country’s EU presidency. On April 26, 2022, the EU approved 130 million euros (about $190 million) in financial assistance to address the “exceptional situation” caused by China’s discriminatory trade restrictions against Lithuania.

PROPOSAL FOR A VALUES-BASED ECONOMIC “NATO”

It is not that the democratic world does not recognize the threat posed by China, and it is not that it does not recognize the importance of collective action by democracies. In this dilemma, as in the classic prisoner’s dilemma scenario, each individual’s rational choice (the choice to maximize self-interest after considering the overall environment and calculating the gains/losses and risks of various possible actions) produces a collectively irrational outcome, making the overall environment worse and ultimately making each actor a victim. In other words, individual rationality produces collective irrationality. After the Tiananmen Square massacre, the major democracies imposed collective economic sanctions on China, but after China adopted the “market for everything” strategy, one by one, starting with Japan, individual democracies—including the United States—faced the lure of China’s huge market. The rational decisions made by each of the individual democracies, starting with Japan, in the face of the lure of China’s huge market (if others enter the Chinese market and they enter the Chinese market, others will gain the most and they will gain the least, and if others do not enter the Chinese market and they enter the Chinese market, they will gain the most, so in both cases the rational choice is to enter the Chinese market) have gradually led the democracies to a collectively irrational outcome.

Eventually, the world’s democracies came to their senses and realized that China’s quest for economic development was not as simple or innocent as Beijing had pretended. By then, China had become a full-fledged totalitarian superpower with a strategic agenda of military, technological, and economic hegemony, even resorting to blatant theft of intellectual property (IP). It became clear that China posed (and continues to pose) the greatest threat to the international order of freedom and the rule of law, and even to our democratic way of life at home; but by then it was too late to get out of the situation. At a time when the world’s democratic leaders, including U.S. President Biden, are determined to unite in their efforts to counter the CCP’s predatory practices, the biggest problem we face is the entrenched dependence of virtually every country’s economy on China.

It would be naive to think that only smaller economies are impacted, as we mentioned above with the UK and Australia. Indeed, we must recognize that all countries are affected, including the United States and Germany, Europe’s largest economy. There are numerous examples of the U.S. and Germany compromising their core principles out of concern for economic losses in their relations with China, not to mention individuals and companies with interests at stake.

As mentioned above, the single largest problem for the democratic world is the overdependence of each country’s economy on China. By 2020, China had become the largest trading partner of the United States and one the top three trading partners for the vast majority of U.S. allies, including Germany, Japan, India, South Korea, Australia, New Zealand, Argentina, Brazil, the United Kingdom, Canada, South Korea, Taiwan, Mexico, and Chile, just to name a few. And smaller, more fragile democracies are still largely left to fend for themselves.

Undoubtedly, armed with economic leverage, China has become a potent anti-democratic force challenging the U.S.-led rules-based liberal international order. China has become increasingly adept at using its economic power to coerce democracies on value-based issues, especially human rights.

I assume we all want to find ways to address this dire situation insofar as possible. But the question remains: How much money is an individual, a company, or a country willing or able to lose by standing up to China’s brutal totalitarian regime? We must admit that it is probably too much to ask Norwegian fishermen, Canadian farmers, Czech and Lithuanian businessmen, or even American and German entrepreneurs to individually sacrifice their livelihoods on the altar of human rights. There is a limit. We must be idealistic but also realistic. But what is the solution? Conventional wisdom tells us that “divided we fall.” But the Chinese government excels at the strategy of divide and conquer. The world’s democracies must respond united and in unison.

As we have noted above, in response to values-based conflicts in recent years, Japan, Taiwan, Australia, the Czech Republic, Lithuania, and other countries, including the EU, have come together in mutual support to counter China’s economic coercion. This points us in the right direction.

But how long can such beneficial and effective acts of mutual assistance last? Will these democracies (including the EU) be able to maintain their strong values and mutual support as the geopolitical landscape changes (e.g., as China adopts an increasingly divisive strategy) and interest structures evolve? The historical record in this regard is troubling, to say the least. The United States itself has a long history of loudly advocating for democracy in principle while compromising on democracy in practice. In the long run, this habit will undermine, rather than advance, the future of global democracy.

That is why the world’s democracies need to establish a rules-based standard for mutual assistance based on shared values, rather than relying on the unilateral discretion of individual states. In 2004, macroeconomists Edward Prescott and Finn Kydland won the Nobel Prize in Economics for their work on the concept of “time inconsistency,” in which they introduced an important conclusion: Rules are better than discretion because parties are bound not to change their policies, even if doing so might benefit them. If each party has the discretion to change its policy, a time inconsistency problem arises, and credibility and commitment become difficult to establish.

In the aftermath of World War II, which precipitated a long-lasting ideological, political, and military rivalry between the United States and the USSR (the world’s two superpowers at the time), the North Atlantic Treaty Organization (NATO) was established, bringing together allies in Western Europe and North America with a pledge to defend each other militarily in the event of a Soviet attack. This alliance has endured (growing from 12 founding member-states to 30 today) and still maintains its founding principle of collective security, meaning that an attack on one is considered an attack on all. The importance of NATO and its special functions has become even more apparent since Putin’s invasion of Ukraine in February 2022.

The values-based economic treaty organization of democracies that I propose would aim to engage in both collective defense and collective offense on values-related issues. If we apply the NATO principle of mutual military defense to the economic sphere, then whenever China uses economic coercion to bully a member-state on human rights issues, for example, others should automatically and immediately respond by increasing trade with the bullied member. This will help break the collective action dilemma in which all democracies have been trapped. This is very important for everyone, especially smaller countries. Under my proposed treaty organization, if a non-democratic country retaliates economically against a member-state for standing up for democratic principles, then all other treaty members must proactively come to its defense to help alleviate the resulting economic pain.

Economic security is the most important pillar of democracy. I believe that the NATO concept can be expanded to include all democracies in order to ensure their economic vitality and fend off China’s economic coercion, while offering developing countries a better option and a brighter economic future without the need for military action. Therefore, I propose a values-based economic version of NATO.

HOW A VALUES-BASED ECONOMIC “NATO” SHOULD WORK

The values-based economic treaty organization that I propose would be a global coalition of the world’s democracies (as well as other countries, territories, and partners with shared universal values) to defend against economic attacks, including the coercive use of economic and financial instruments, by authoritarian regimes seeking to undermine democracy and the democratic way of life.

The criteria for membership would include (1) having a democratically elected government, and (2) being a signatory to the Universal Declaration of Human Rights (UDHR) and the International Covenant on Civil and Political Rights (ICCPR), with national laws enacted to implement the rights enshrined in these two documents. In addition, each signatory country must enact a Human Rights Act that links human rights to all aspects of diplomatic relations with dictatorships, including regular assessments and executive reports to parliament or congress.

Under my proposed values-based economic “NATO” alliance, an economic attack by a totalitarian regime (including monetary sabotage or the imposition of unfounded sanctions or embargoes for coercive purposes, such as punishment or retaliation for criticism) that seeks to destabilize one or more member states of the alliance will be considered an attack against them all.

Again, the primary goal of the proposed values-based economic “NATO” would be to ensure the economic security of all member states through collective action. Collective economic security can be achieved through measures such as absorbing goods and services left in limbo by financial sanctions or tariffs imposed by autocratic regimes, and providing funds to compensate the industries and workers of affected member states.

The alliance should have an “Economic NATO Council” responsible for formulating broad strategies and policies as well as coordinating and implementing actions to strengthen the economic power of democratic countries.

A values-based economic “NATO” alliance would include various requirements and rights for signatory members, including the following:

Signatory nations would be required to purchase “crisis insurance,” effectively creating a community assistance fund. All member states would contribute to the fund, which would be used to assist countries and partners that come under economic attack by any totalitarian regime, thereby avoiding or mitigating the adverse effects of economic coercion or warfare.
Signatory nations would be obligated to use their markets to help other members, while preventing autocratic regimes from exploiting the free trade system of democratic countries to increase their collective strength.
Signatory nations may bring any matter affecting their economic security before the Council for discussion, or may request the Council to invoke collective economic action to counter economic attacks by autocratic regimes, and the Council shall act by majority vote.
Signatory nations should jointly confront human rights violating countries on human rights issues on various global platforms and formulate joint punitive measures for individual cases of human rights violations. Such measures could include imposing economic sanctions, boycotting cultural events, etc.

The alliance should identify and take steps to mitigate economic and financial vulnerabilities to totalitarian attacks or aggression. For example, the alliance should formulate and implement policies to eliminate economic dependence on autocratic regimes throughout the value chain, focusing on the creation of a secure global supply chain that can sustain economic warfare or attacks by totalitarian regimes.

The alliance must tighten control over the community’s resources and prevent totalitarian regimes from obtaining capital, high-tech talent, and critical technologies, while simultaneously bridging the global digital divide to expand e-commerce by providing a free and open Internet. The alliance should have comprehensive strategies for investing in demand-driven and cost-effective infrastructure development for its members to ensure long-term economic security.

CONCLUSION

There is no denying that the world has entered a new Cold War. Indeed, both U.S. President Joe Biden and Chinese General Secretary Xi Jinping have acknowledged this fact, although both have avoided the term “Cold War.” Increasing geopolitical divisions in the wake of Russia’s deadly invasion of Ukraine have brought the new Cold War into sharper focus. It is a Cold War because the conflict of values has become the root of enduring military, economic, and diplomatic conflicts. Without a conflict of fundamental values, all other conflicts would be easy to resolve in an international order based on freedom and the rule of law. For the democratic world, the question is not whether to acknowledge this new Cold War (or whatever we call it), but how to fight and win. The values-based economic “NATO” that I propose is the most fundamental and effective structural response to the grave challenge to world democracy posed by China and other dictatorships.

The proposed values-based economic “NATO” would not be a military organization like NATO, nor would it be a U.S.-led security organization like the Quadrilateral Security Dialogue (QUAD) or AUKUS. While the new Cold War will certainly not manifest itself in military conflict for the most part, strong military alliances of democracies against China are justified. While democratic countries are taking collective measures to counter China’s aggressions and threats, a new wave of democracy has yet to arrive. The reason boils down to “it’s the economy, stupid,” to quote James Carville. China’s recent policy-driven double-digit growth rate and $404 billion annual trade surplus with the U.S. alone have shifted the balance of power, while it has weaponized its economy through programs such as the Belt and Road Initiative to lure developing countries and sanction its democratic critics. Today, value conflicts enabled by economic power are becoming more common and fundamental, so the values-based economic “NATO” measures would serve as the foundation for these military and security arrangements.

The values-based economic “NATO” would not be an international organization like the World Trade Organization (WTO), which promotes global trade and arbitrates trade disputes. The WTO was unsuccessfully used as leverage to promote human rights in China during the debate over whether and how to admit China more than 20 years ago. The values-based economic “NATO”—which would in a sense make up for what was missing back then—would be a values-based economic organization that not only can help promote China’s human rights progress, but also can coordinate its powerful economic forces to respond collectively and effectively when member-states come into economic conflict with China over promoting China’s human rights progress, defending their democratic values, or defending a rules-based liberal international order.

Indeed, it turns out that the WTO is not the best institution to resolve trade disputes when they arise from value conflicts. For example, in December 2020, Australia filed a complaint with the WTO over China’s tariffs on barley and wine. The WTO established panels in May and October 2021 to rule on the barley and wine disputes, respectively. Reports are usually issued after 18 months; any errors found must then be corrected within a “reasonable” timeframe (usually at least 15 months). This means that it can take years to resolve a case. As another example, in December 2021, German auto parts giant Continental was pressured by China to stop using parts made in Lithuania. The Federation of German Industries was more sympathetic and supportive of the EU’s complaint filed with the WTO on behalf of Lithuania, but the EU’s complaint to the WTO did not allow the WTO to immediately open an investigation against China or impose any kind of sanctions on China. A WTO case takes a long time to resolve and first requires coordination between the two parties to the dispute, which usually yields no result when the dispute arises from a conflict of values. Moreover, the current WTO sanctions mechanism is often inactive, so the EU’s approach will not have the desired effect for the foreseeable future. The proposed values-based economic NATO for the world’s democracies would at least serve as a strong and necessary complement to the WTO, even if it cannot fully replace it.

The alliance would also serve as an indispensable complement to the proposed formation by the United States and its democratic allies of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the Indo-Pacific Economic Framework (IPEF), as well as the Partnership for Global Infrastructure and Investment (PGII) plan announced by Biden and other G7 leaders in June 2022 to counter China’s Belt and Road Initiative.

In recent years, especially after the outbreak of the COVID-19 pandemic, the democratic world has become increasingly aware of the damage and potential threat posed by over-reliance on China in the global supply chain, and has begun a strategic arrangement to restructure the global supply chain in multilateral mechanisms such as the G7 and bilateral trade mechanisms between countries. The goal is far from being achieved, as China still has significant manufacturing and trade capacity to leverage against any country, including the United States. A well-functioning values-based “NATO” would naturally produce the institutional force that will push the democratic world to reorganize global supply chains away from China’s stranglehold.

It has long been true for East Asian countries that their security depends on the United States and their economies depend on China. This has also become the case for Latin American countries, as discussed earlier in this article. Over the past two decades, most East Asian nations have struggled to maneuver between these two superpowers. This is true of the 10 member states of the Association of Southeast Asian Nations (ASEAN), as well as Japan and South Korea, which have historically had close military alliances with the United States. Singapore is also a leading advocate of a balanced diplomatic relationship between China and the United States. But in his remarks at a meeting with President Biden in May 2022, South Korean President Yoon Seok-yeol described the U.S.–South Korean partnership as an “economic security [and] technology alliance,” emphasizing that “the economy is security, and security is the economy.” This marked the beginning of a new synergistic relationship between the two countries.

Now is the time to start building the values-based economic NATO, better late than never. The Russian-Ukrainian war has brought democratic commitment to a new level worldwide, and the need to strengthen democratic values and solidarity in different areas and at different levels is being felt. More importantly, after the CCP’s 20th National Congress, which elevated Xi Jinping from ruler to de facto emperor, there can be no doubt about the nature of the CCP regime with Xi at its core, nor any doubt about what the regime wants, because it has repeatedly declared and made remarkable efforts to achieve the same goals for decades: to keep the CCP in power, to reabsorb Taiwan, to control the East China and South China Seas, to rewrite international rules, and to make China the most powerful country in the world. As the Biden administration rightly noted, China is the “only competitor with both the intent to reshape the international order and, increasingly, the economic, diplomatic, military, and technological power to advance that objective.”

China is facing an international backlash. Negative perceptions of China around the world have risen to their highest levels since the 1989 Tiananmen Square massacre. A 2021 Pew Research Center survey found that about three-quarters of people in the United States, Europe and Asia have a negative view of China and lack confidence that Xi Jinping will act responsibly in world affairs or respect human rights. Another survey, conducted by the Center for Strategic and International Studies (CSIS) in 2020, found that about 75 percent of foreign policy elites in these places believe that the best way to deal with China is to form a coalition of like-minded countries to oppose it. In the United States, both political parties now support a hardline policy toward China. The European Union has officially declared China a “systemic competitor.” In Asia, Beijing faces openly hostile governments in every direction, from Japan to Australia to Vietnam to India. Even people in countries with which China trades heavily have turned against it. Polls show, for example, that South Koreans are now more disgusted with China than with their former colonial ruler, Japan.

This year’s State of Southeast Asia Survey Report (published by Singapore’s ISEAS–Yusof Ishak Institute) shows that 63 percent of respondents welcome U.S. regional, political and strategic influence, and 52 percent believe the United States will do the right thing and contribute to global peace, security, prosperity and governance. Only 19 percent feel the same way about China. Among respondents in Southeast Asia, the United States is the second most trusted power, after Japan. The European Union ranks third. All are part of the democratic world. As in previous surveys, China remains the least trusted power, with 58 percent saying they do not trust Beijing. Anti-Chinese sentiment is beginning to coalesce into a concrete backlash. This opposition is still nascent and fragmented, largely because many countries are still dependent on China for trade. But the general trend of aggregate demand in the democratic world is clear, and the values-based economic “NATO” should come into being.

The world has now reached another major turning point, and our future hinges depends to a large extent on whether how democracies around the globe will fight and win the new Cold War, thereby fully reversing the global trend of democratic retreat. By preserving and defending democratic values while protecting the economic interests of democracies, the values-based economic “NATO” would be instrumental in helping the democratic world to regain its vitality.

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Dr. Jianli (Doc) Yang, a world renown human rights activist and scholar, is a major architect and leader for China’s democracy. Dr. Yang holds a Ph.D. in Mathematics from University of California at Berkeley and a Ph.D. in Political Economy from Harvard University. He is a frequent public speaker on various world forums and contributor to various international magazines on topics ranging from human rights in China, China’s democratization, China’s politics, ethnic relations in the PRC, cross-strait relations, and on US China policies.