China’s 2nd-Tier ‘Axis of Evasion’

Electric cars for export stacked at the international container terminal of Taicang Port in Suzhou, in China's eastern Jiangsu Province, on April 16, 2024. (STR/AFP via Getty Images)

Commentary

Communist China is infamous for leading an “axis of evil” composed of itself, Russia, Iran, North Korea, and, arguably, Venezuela and Burma (Myanmar). This axis is terrorizing its own citizens and those of neighboring countries.

However, to evade the U.S. sanctions and tariffs imposed on the axis, Beijing appears to prefer what might be considered “second-tier” axis partners, especially Mexico and Vietnam, but also Thailand, Egypt, Malaysia, and Hungary. China invests in this second tier to manufacture abroad for shipment or transshipment of exports, including what should be tariffed as mostly Chinese goods, to the United States and allies.

Chinese investment in the second tier allows Chinese companies to continue producing for export to the United States and our allies despite tariffs and sanctions, while rewarding authoritarian regimes that are reasonably close to Beijing politically and diplomatically, even if they are not as close as the first tier.

This Chinese Communist Party (CCP) strategy makes sense from its own malign perspective, given that Chinese investment in the United States and allies would be at risk of confiscation in a war scenario, and the first tier is already under U.S. sanctions or tariffs, and so are sub-optimal from the perspective of Chinese export-oriented investment.

That leaves countries sitting on the fence, between U.S. allies and the original first-tier axis countries, for Chinese export-oriented investment. From a CCP perspective, the best of these middle countries to serve as conduits for investment and trade targeting the United States and allies are those that are ideologically closest to Beijing: the second tier.

First-tier axis countries, on the other hand, are optimal for China to import from, given that existing U.S. and allied sanctions or tariffs make them so desperate to sell. This gives Chinese companies bargaining leverage that results in billions of dollars of discounts from global market prices, most importantly in the energy markets for oil and gas. It also incentivizes the CCP to push countries from which it imports to violate international laws and norms, so they get sanctioned, join the first tier, and are forced to sell to China at a discount.

Beijing apparently encouraged Moscow, for example, to launch the Ukraine invasion of 2022. Sanctions resulted, and now, Russia has almost nobody but China to whom it can sell its sanctioned oil. The CCP knows this and can demand and receive deep discounts of as much as 40 percent for Russian oil. That must infuriate Moscow.

That the CCP uses its leverage this way indicates that its partnership with axis countries is primarily transactional. The supposed axis ideology or value for “multipolarity” against “U.S. hegemony,” for example, is more about maximizing each country’s power and territory than truly seeking a multipolar world. Given the chance, each axis power undercuts the others for its own selfish purposes, under the banner of “national interest,” just as China undercuts the price of Russian energy despite that the sanctions imposed on Russia were because of Moscow’s violation and redefinition of a national territorial integrity norm with respect to Ukraine, with the acquiescence of Beijing, and that Beijing also seeks to redefine at the expense of Taiwan.

Democracies can also undercut each other, such as Europe’s cap on Ukrainian agricultural products. But democracies should better support each other with security assistance when under fire, such as U.S. military aid for Ukraine, Taiwan, and Israel.

Kimberly Donavan at the Atlantic Council has aptly called the rogue trading network established by the first-tier axis countries an “axis of evasion.” U.S. sanctions drive their trade away from legitimate partners and thus toward each other. They can evade U.S. and allied sanctions in this manner and create an entire international shadow economy because their ships are not interdicted at sea. However, these first-tier countries carry too much risk for Chinese investment meant to expand exports to the U.S., EU, Japanese, and other allied markets, as the entire axis is under individual sanctions.

Therefore, Beijing’s strategic approach to investing in exports to the United States and its allies must be different from its approach to inter-axis trade and investments meant to support that trade, such as Belt and Road infrastructure.

The CCP’s strategy of exporting to the United States and allies is apparently to channel export investment toward its second-tier partners that are less likely to be tariffed or sanctioned but still have relatively pro-Beijing governments. Beijing thus makes international political gains, including by demonstrating to other countries not yet benefiting from such investment that they could benefit if their policies were aligned with the CCP. That increases the CCP’s political influence abroad through broadcasting incentives to align with China. There are few disincentives given that the United States and its allies aren’t asking nations to take sides against China in the superpower conflict.

Perhaps it’s time to change that. Perhaps it’s time to follow a sentiment that leaders from both major U.S. parties have communicated to foreign nations in the context of the war on terror: You’re either with us or against us.

Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.