By Troy Stangarone

Shortly after the United States and South Korea began discussions on the deployment of the Terminal High Altitude Area Defense (THAAD) system in response to North Korea’s fourth nuclear test, China’s Ambassador to South Korea, Qiu Guohong, suggested that the deployment of THAAD could “destroy” relations between South Korea and China. Now, after more than a year of trying to strong arm South Korea with a diplomatic cold shoulder and economic pressure, Beijing has acknowledged that economic pressure was not enough to convince Seoul to reverse course on the deployment of THAAD. While Beijing still argues that THAAD is against its interests, a recent agreement between South Korea and China has tentatively cleared the way for economic relations between the two countries to return to normal.

For a while, there were concerns among some in Japan and the United States that South Korea was falling into China’s orbit as former President Park Geun-hye worked to improve relations with Beijing. The effort culminated in President Park being the only Western leader to attend China’s 70th anniversary commemorations of World War II, a ceremony where President Park was an honored guest and not Kim Jong-un.

The decision to consider THAAD changed all of that. China’s opposition to the deployment of THAAD on the Korean peninsula has been longstanding with Beijing arguing that that the system’s radar undermines its own security by allowing the United States to see deep into Chinese territory. However, the X-band radar used by THAAD is constrained in its ability to look into China when defending against North Korean missiles and would not be able to intercept Chinese ICBMs heading for the United States. Instead, China is more concerned about the prospect of the United States pushing for an integrated missile defense system with South Korea and Japan whose ties might evolve into a deeper, more formal trilateral alliance.

If China was opposed to THAAD, South Korea was ambiguous on its position until North Korea conducted its forth nuclear test in 2016. With the United States as its primary security partner and China as its largest trading partner, Seoul wanted to maintain positive relations with both. However, South Korea’s position began to change after North Korea’s fourth nuclear test. President Park campaigned on an effort to build trust with North Korea but instead faced Kim Jong-un’s first nuclear test, the North Korean withdrawal of workers from Kaesong, and the land mine incident along the DMZ as a reward for her efforts. After the fourth test, Kim Jong-un’s second, the Park Geun-hye government moved away from attempts at engagement with North Korea to a policy of using greater economic pressure to bring North Korea to talks over its nuclear program. One result of that shift was the decision to hold formal talks with the United States over THAAD, which prompted the dispute with China.

The deployment of THAAD isn’t the first time that China has tried to strong arm South Korea when Seoul took an action it didn’t like. Before China joined the WTO in late 2001, Chinese garlic began flooding into South Korea. In response to the surge in imports, Seoul took steps to safeguard domestic producers, but triggered what came to be known as the “Garlic War.”

Seeking to pressure South Korea into backing down, China threatened to ban imports of South Korean cell phones and polyethylene. Seoul was left with a choice. Remove its safeguards on $15 million of garlic imports, or lose $500 million in exports to China. Six weeks later South Korea agreed to buy almost a years’ worth of Chinese garlic while secretly agreeing to lift all import restrictions on Chinese garlic by 2003.

By the time the decision to deploy THAAD was being discussed China had long since joined the WTO, taking the bare knuckles tactics of the Garlic War off the table. Instead, China would have to be more discreet in using economic pressure against South Korea.

Formally, China never publically sanctioned South Korea over THAAD, instead it designed informal measures to pressure Seoul. After Lotte agreed to transfer a golf course it owned to the South Korean government for the deployment of THAAD, China shut down nearly all of Lotte’s stores for fire safety violations, thereby demonstrating that there would be a direct cost to South Korean companies that crossed Beijing’s security interests. China also focused the economic losses in a few high profile industries, such as South Korea’s popular Hallyu content to ensure there would be media coverage of costs of crossing China. But Beijing was also careful avoid areas where China had a WTO or FTA commitment. These steps helped to create a general sense of anxiety in South Korea, while the focus on cultural and consumer products helped to avoid a disruption in overall trade and prevent a negative impact on jobs in China.

In the end, informal sanctions weren’t enough to convince South Korea to change its position on THAAD and China miscalculated how economic pressure on South Korea would play out on a national security issue in South Korea rather than an economic issue. When Ambassador Qiu Guohong first made his comment about THAAD potentially destroying the relationship with South Korea, National Assemblyman Won Yoo-cheol, then floor leader of the ruling Saenuri Party, said that Ambassador Qiu’s “remarks were rude and unreasonable as they completely disregarded the sovereignty and the security of the Republic of Korea.”

The economic pressure never convinced the South Korean public to change its mind either. THAAD’s deployment in South Korea has been a relatively popular decision. Support has been consistently over 50 percent as China pressured South Korea. While China’s pressure did not push South Korea’s to embrace THAAD has a nationalist response, it does seem to have lessened the opposition to THAAD which dropped by 8 percent from January when China upped its pressure to July of this year. When the Moon Administration made the decision to authorize the temporary deployment of THAAD in August 72 percent of South Koreans were in favor of the move. In contrast, China’s decision to punish South Korea has made China even less popular than Japan.

China also failed to realize that the dispute over THAAD wasn’t about bilateral relations with China, but the need to defend against North Korea. As North Korea continued to conduct missile tests, the need for THAAD became clearer in South Korea, while China’s efforts punish South Korea over THAAD awkwardly put Seoul in the position of having to choose between its primary security partner in a crisis and its leading economic partner. Caving on security demands would have only left South Korea’s security more vulnerable in the future.

But ultimately, one of the biggest reasons that China failed to reverse the decision on THAAD was that it was unwilling to pay any real economic price to achieve its goal. While South Korea likely suffered minimal losses of $7.3 billion[i] from the drop off in Chinese tourists and another $1.78 billion from the closures of Lotte, the final losses will likely be much higher as additional loses from tourism are still to come and the loses from cultural content are hard to calculate. Ultimately, though, the economic costs weren’t broadly spread across the economy. In fact, South Korean exports to China are up 13.4 percent over the first nine months this year and the economic costs to South Korea from THAAD are less than the estimated impact of South Korea’s own regulations on data location.

However, much as with the Garlic War, there are concerns that South Korea and China reached a secret deal to prevent the deployment of any additional THAAD batteries and promises not to join an integrated U.S. missile defense system or to join a formal trilateral military alliance with Japan and the United States. While there was no deal, Chinese press is spinning the deal as South Korea making significant concessions on these issues, and while likely designed to help sell the shift in policy domestically, China benefits from creating uncertainty in the alliance by continuing to suggest that there is in fact a deal.

This perception could create challenges later on. Any formal military alliance with Japan would be a long-term prospect, but there may come a need to deploy additional THAAD batteries to defend South Korea and an integrated missile defense system could be a necessary step for deterring North Korea short of preventative action.

Even in backing off economic pressure China is laying down a marker and continuing to press South Korea on future national security issues. Because China never formally announced sanctions over THAAD, China has only agreed to restore normal economic relations. There are no sanctions to rescind. While some measures, such as the closure of Lotte stores and the drop in tourism are clear, others such as the failure to certify South Korean electric car batteries are less so. In leaving ambiguity on what measures are related to THAAD, China can maintain a level of anxiety in South Korea and remind Seoul that it might suffer the same fate again should it consider additional THAAD deployments or joining an integrated missile defense system. In doing so, China might have been unable to stop the deployment of THAAD, but may try to use the situation to position itself to achieve longer-term goals. However, as long as there is a strong U.S.-Korea alliance, Seoul will be able to prevent China interfering in any steps it decides to take to enhance South Korean security.

Troy Stangarone is the Senior Director for Congressional Affairs and Trade at the Korea Economic Institute of America. The views expressed here are the author’s alone.

Photo from v15ben’s photostream on flickr Creative Commons.

[i] Estimate based on the fall off in Chinese tourists through September compared to 2016 multiplied by the average amount spent by Chinese tourists in South Korea.