Beijing has watched carefully as Western allies have deployed unprecedented economic statecraft against Russia over the past two years. Our report from June 2023 modeled scenarios and costs of Group of Seven (G7) sanctions in the event of a crisis in the Taiwan Strait. However, that report largely left unanswered a critical question: How would China respond?
This report examines China’s ability to address potential US and broader G7 sanctions, focusing on its possible retaliatory measures and its means of sanctions circumvention. We find that reciprocal economic statecraft measures would exact a heavy financial toll on the G7, China itself, and the global economy. Crucially, however, we also find that China is developing capacities that are making its economy more resilient to Western sanctions.
We consider the use of economic statecraft tools in two main scenarios: a moderate escalation over Taiwan limited to the United States and China that remains short of military confrontation, and a more severe scenario with G7-wide restrictions targeting Chinese firms and financial institutions. For each, we consider China’s potential responses to adversarial economic statecraft in terms of retaliatory action (including restrictions on economic activity within China and China’s potential actions abroad) and attempts to circumvent G7 sanctions.