China's trade war with Lithuania a 'test' the West cannot afford to fail

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China is using a trade war with Lithuania as a “weapon of economic destruction” in a test of democratic values that the West cannot afford to fail, the Baltic country’s foreign minister has warned.

Beijing has restricted trade with Vilnius and even begun pressuring European multinationals to ditch Lithuanian suppliers after it became the first EU member to open a Taiwanese representative office under the name Taiwan last summer.

Other EU countries use the name Taipei for fear of enraging China, which claims the democratic island of 23.5 million and seeks to isolate it on the global stage.

“A weapon of economic destruction is being tested in Lithuania. If it works, it basically can be used in any other country and by any other non-democratic country that has issues with another country that it doesn’t like,” Gabriel Landsbergis told the Telegraph.

He said the trade war was a direct challenge to the rules-based international order that democratic countries abide by: “This is a test for the European Union because it is a trade union but it is a test for the West as well.”

Lithuanian Foreign Minister Gabrielius Landsbergis with US Secretary of State Antony Blinken Credit: Reuters

The David and Goliath battle between the tiny Baltic nation of 2.9 million and China has won praise from Washington, which views Taiwan as critical to Indo-Pacific security.

But Vilnius risks a heavy price. Beijing halted trade and export permits for Lithuanian producers and suspended rail freight there in August.

Taiwan, which only has 14 formal diplomatic allies, has tried to cushion the losses to Lithuania from shrinking Chinese trade.

This week it announced it will launch a $1-billion credit programme to help fund joint projects between Lithuanian and Taiwanese companies in the semiconductor industry as well as biotechnologies, satellites, finance and scientific research.

There is an additional $200-million fund to invest in Lithuanian industries and boost bilateral trade.

But Beijing has continued to ramp up the pressure, including telling European multinationals to ditch Lithuanian suppliers or risk losing access to the Chinese market.

“What our companies are facing, this is most probably illegal,” said Mr Landsbergis. “It goes against the trade regulations that China has assigned itself to under the WTO.”

He refused to comment on comments by Gitanas Nauseda, the president of the country, that allowing Taiwan to open a quasi-embassy under its own name had been a “mistake”.

Mr Nauseda is not alone; in a December poll, just 13 per cent of Lithuanians said they supported the China policy, while 60 per cent were against it.  

Lithuanian President Gitanus Nauseda has raised objections to the government’s China policy Credit: Dursun Aydemir/Bloomberg

But Mr Landsbergis said Lithuania would not back down.

“I don’t believe that allowing the people from the Taiwan Island who are asking to be called l Taiwanese is infringing on the one China policy. Let them be called Taiwanese. It’s normal,” he said.

The issue has become a dilemma for the EU about how to support one of its member states without provoking the ire of Beijing.

The European Commission is responsible for steering the EU’s trade policy, including its retaliation to any dispute.

Germany, the richest and most influential EU member state, has historically nurtured close trade links with China. But Berlin has joined Paris in voicing support for Lithuania, saying the Single Market must be protected, and EU foreign ministers also insisted on the need for unity at a meeting in Brest, France on Friday. 

Mr Landsbergis predicted the EU would come forward with new trade defence measures, including a mooted anti-coercion instrument allowing Brussels to swiftly impose counter sanctions “far faster” than people expected. EU officials are also preparing a WTO lawsuit against Beijing.

China recalled its ambassador to Lithuania in protest Credit: Valda Kalnina/EPA-EFE/Shutterstock

He called on the bloc to bolster the resilience of EU supply chains against non-democratic countries such as China, saying their vulnerability was “probably the weakest link in global trade.”

Political support from the UK and US has been more full-throated, and Mr Landsbergis said it had been valuable in facing down Beijing.

Katherine Tai, the US Trade Representative accused Beijing of “economic coercion” in a call with Valdis Dombrovskis, a senior EU commissioner last week.

Beijing hit back that Washington was spurring the Baltic state to “use Taiwan to contain China.” 

After Lithuania’s diplomatic delegation hastily left China in December over security fears, Liz Truss, the UK foreign secretary, denounced Beijing’s “unacceptable pressure” on the Baltic nation.

Taiwan’s public have also thrown their support behind Lithuania by buying up products such as chocolate and beer from the Baltic country that have been rejected by Beijing.

Last week, state-run Taiwan Tobacco and Liquor Corp (TTL) purchased 20,000 bottles of Lithuanian rum bound for China after learning it could be blocked.

Government bodies have since been sharing rum cocktail recipes with the public.  

Dr Zsuzsa Anna Ferenczy, a postdoctoral researcher in Taiwan and former political adviser in the European Parliament, said the situation presented “an opportunity to shape Taiwan’s image as an economic and political alternative to China.”

She added that while Lithuania was “politically and morally outshining its neighbours” by standing up to China and could set an example to other EU countries, it also needed “the EU’s support to offset the loss of Chinese trade.”

For Mr Landsbegis, standing up to China is a matter of principles borne out of the Baltic country’s history.

He said there was “a lot of understanding” of Taiwan in part because Lithuania was annexed by the much larger communist Soviet Union in 1940. This week marked the 31st anniversary of Lithuania’s war of independence.

“We remember what it meant to stand up against a country that’s trying to reoccupy you or deny you your independence,” he said.