Little Lithuania — population less than 3 million — has been taking a trade battering from China, but it is becoming a test case on whether smaller countries can be persuaded to resist Beijing’s economic coercion. 

Lithuania’s pushback on the Asian giant is viewed as an indication of whether global Davids, backed by Western powers, might find enough strength to withstand the Goliath’s economic pressure to force compliance with Chinese foreign policy goals.

Tensions are coming to a head over the Baltic country’s decision last year to allow Taiwan to open a de facto embassy in its capital, Vilnius, and to call it a “Taiwanese Representative Office” — rather than the less-controversial “Taipei Office” nomenclature used by most countries.

The European Union said last week it is pursuing a World Trade Organization consultation — the first part of an official proceeding —over China’s trade actions against Lithuania. The WTO said those moves “appear to be discriminatory and illegal under WTO rules.”

The WTO actions follow weeks of pressure on Brussels from officials in Washington and other European capitals over the long-term implications from China’s unchallenged bullying for the EU single market and the principle of national sovereignty.

“If these countries are left to twist in the wind, then they will decide it’s too difficult [to stand up to China],” said Edward Lucas, a senior fellow at the Center for European Policy Analysis in an interview from London. “We really need this democratic solidarity that if China picks on you then other countries pick up the slack.”

Even as the economic stakes for Lithuania receive more international attention, the credibility of Beijing using access to its massive economy to pressure other countries into acquiescence to its foreign policy wishes is also on the line.

If the United States and other countries collectively take steps to alleviate China’s trade harm on Lithuania, it would go far in puncturing the myth Beijing has worked to prop up: that the economic pain on countries that disobey its wishes is too severe to be risked, said Lucas, a former journalist who is running for parliament for the UK Parliament as a Liberal Democrat.

“The great thing is that once China realizes its sanctions aren’t effective, then it won’t do it,” Lucas said. “The whole point is that China’s stuff works because people believe it works.”

China generally does not officially link economic retaliatory measures with specific foreign policy grievances. Rather, it uses these measures informally and extralegally.

Those examples include China in 2010 halting shipments of rare earth minerals to Japan, increasing fees in 2016 on commodity imports from Mongolia, and imposing questionable regulations to limit imports of Norwegian salmon and bananas from the Philippines. In recent years, Beijing also imposed import bans and tariffs on its neighbors.

But China’s recent actions against go much further.

‘Upsetting China’

Reports of China’s economic retaliation include halting rail freight to Lithuania, adding bureaucratic hurdles to the permit approval process for Lithuanian exporters, temporarily removing Lithuania from China’s customs registry, pressuring multinational companies to stop using Lithuanian-made parts, and blocking the export of Chinese goods and electronic parts used in Lithuanian-made products.

“It’s China training everyone to be afraid of upsetting China,” said Theresa Fallon, director of the Brussels-based Center for Russia Europe Asia Studies. “But I think they’ve really gone ballistic with Lithuania.”

China’s retaliatory trade actions could reduce Lithuania’s GDP growth between 0.1 and 0.5 percent this year and as much as 1.3 percent in 2023, according to Lithuanian Central Bank figures reported by the Lithuanian public broadcaster LRT.

“It is the first time China has used economic coercion against global supply chains. This is an affront to the EU’s single market and the EU as a trading block, but also a severe violation of international trade rules and China’s own commitments to the WTO,” the Lithuanian Foreign Ministry said in a statement.

“It is in the interest of all the market economies and democratic world at large to respond to the Chinese coercive practices and to stop them from distorting the world trading system and turning it into a routine practice to be used again against anyone else,” the ministry added.

Though Lithuania’s naming of the de facto Taiwanese embassy is its most serious offense in Beijing’s eyes, Vilnius has asserted independence in other ways. In 2019, Lithuania determined a proposed Chinese investment in a deep-water port expansion project too great a security risk.

Last year, the Lithuanian government withdrew from a Chinese-dominated framework for investment in Central and Eastern European economies and urged the public to throw out Chinese-made smartphones after some devices sold there were found to feature built-in software that could censor search results for terms like “Free Tibet.” The Baltic country also donated over 250,000 COVID-19 vaccines to Taiwan.

While Vilnius remains committed publicly to resisting Chinese pressure over its engagement with Taiwan, the retaliation is seriously worrisome to the Lithuanian public. A December survey of Lithuanians found that roughly 60 percent opposed the government’s China policies, according to a report from LRT.

‘European cohesion’

Increasingly, U.S. lawmakers are using Lithuania to raise the alarm about the consequences for Washington’s broader goals of building international solidarity against China’s human rights violations and its territorial ambitions in Taiwan and the South and East China seas.

“The challenge many of those [European] countries face is their economic ties to China are a pretty substantial percentage of their economy and I think it sort of balances out how far they are willing to go on some of these things,” Sen. Marco Rubio, a prominent anti-China hawk, said in an interview a week before the EU sought the WTO consultation over China’s actions.

“If there’s really going to be European cohesion, they’re going to have to reach a point where they ask themselves: ‘Are we willing to live in a world and to continue to have economies that are structured in such a way where a great power from another continent holds this sort of sway over every decision they’re allowed to make?’

“It’s a huge test for the EU,” the Florida Republican said, “or Europe at large and we should try to be as helpful as we can in terms of offering alternative economic engagement.”

Senate Foreign Relations ranking member Jim Risch, R-Idaho, and Sen. Jeanne Shaheen, D-N.H., who leads the Foreign Relations Europe subcommittee, have introduced a bipartisan resolution that commends Lithuania for “its resolve in increasing ties with Taiwan and supporting its firm stance against coercion by the Chinese Communist Party.”

In the House, Rep. Ami Bera, D-Calif., who chairs the Foreign Affairs Asia subcommittee, has introduced a bill to establish an interagency National Security Council task force charged with developing a strategy for deterring and responding to cases where China uses economic coercion on businesses and foreign governments.

A cynic’s viewpoint of Lithuania’s actions — one experts say at least a few European governments hold—is Vilnius initially calculated it had more to gain globally by picking a fight with China, which is not a major trade partner.

Lithuania’s willingness to face economic retaliation to deepen ties with Taiwan has endeared it to the Biden administration. In November, the U.S. Export-Import Bank signed a $600 million export credit agreement with Lithuania.

“I’m proud that the Biden administration has stood up for Lithuania,” Nicholas Burns, U.S. ambassador to China, told senators last fall. “The Chinese government has launched an intensive intimidation campaign … and the Lithuanians have stood up and they’ve held their ground.”