U.S. Needs New South China Sea Strategy To Restrain Beijing

South China Sea boats
A ship of the Chinese Coast Guard near a ship of the Vietnam Marine Guard (bottom) in the South China Sea, about 130 miles off shore of Vietnam, May 14, 2014. Nguyen Minh/Reuters

On Tuesday, the United Nations Permanent Court of Arbitration issued its final ruling in a landmark case between the Philippines and China over disputed maritime claims in the South China Sea. The object of intense global interest, the three-year-old case has come to serve as a bellwether for the kind of rising power China intends to be.

The ruling itself offered few surprises. As expected, the panel sided with the Philippines, finding no legal basis for China's claims that it holds historic rights to most of the South China Sea. For its part, Beijing greeted the ruling with the same mix of rebuke and dismissal it has voiced throughout the case.

The real question is what happens next. If, indeed, this week's U.N. ruling matters primarily for how Chinese leaders will respond, then—like any bellwether—much depends on knowing what to look for.

Favorable as the panel's ruling was to a close U.S. ally, Washington should not misconstrue it as affirmation of the U.S.' broader strategy in handling the string of maritime disputes that stretch across the South and East China seas (the Philippines is only one of eight countries ensnared in territorial disputes with China in the South and East China Seas). Thus far, the U.S. has devoted nearly all of its attention to military variables: How many bases to install in the Philippines? Whether and how soon to authorize arms sales to Vietnam? How best to the position U.S. Seventh Fleet so as to reassure allies and deter Chinese provocations?

For all of its military bluster, Beijing's real game in the South & East China Seas is an economic one. And until Washington develops a strategy that recognizes this and responds accordingly, it should not expect that either U.N. rulings or U.S. military exercises will much constrain China from changing facts on the water.

Forced to accept the reality of U.S. military dominance in the Pacific, China has instead turned to economic might to work its will in the South and East China Seas. When the Philippines sought to defend its claims in the Scarborough Shoal, Beijing vented its displeasure by allowing Filipino agricultural exports to rot on Chinese docks; by denying Filipino fisherman access to waters they rely on for their livelihood; and by restricting Chinese tourism to the Philippines. Tokyo saw many of the same plot lines in 2010, when China banned exports of rare earth minerals to Japan amid rising tensions over competing claims in East China Sea—causing commodities outages across Japanese industry.

Anyone following the economic plot lines of these disputes would hardly be surprised to learn what might come next. Sure enough, on news of Tuesday's ruling, economic retaliation once again appears Beijing's likeliest response. Already, Chinese commentators have hinted that "[the] most likely measure China may adopt will be economic sanctions against the Philippines." Beijing's hope is that issuing "counter-measures to punish the Philippines… will make other claimants such as Vietnam, Malaysia and Indonesia adopt a prudent attitude on the South China Sea issue."

China's mix of economic sticks and carrots also says much about Beijing's revealed (as opposed to merely stated) preferences. Even as China has sought to publicly downplay the arbitration case, Beijing's pattern of economic threats and inducements suggests otherwise. When Vietnam threatened to file a U.N. arbitration claim against China in mid-2014 as maritime tensions flared, China responded by freezing credit lines for ongoing Vietnamese energy and infrastructure projects, forcing some projects into restructuring and leaving others stranded. Beijing also choked off tourism, depriving Vietnam of its largest single tourist market.

Beijing's message was clear: the costs of challenging China's maritime claims may be quite literally too high for Vietnam to afford. It worked. Vietnam opted not to file an arbitration claim. What is also clear, however, is that Chinese leaders care more—possibly much more—about China's standing under international law than they have acknowledged.

In that sense, the U.N. ruling is good news. But Washington should not take it as vindication of its current approach. Washington's strategy so far—clarifying China's obligations under international law, while expanding the U.S. naval footprint in Asia—is necessary, but wholly insufficient. If the U.S. wants to check Beijing's expansionism, it will need to make China bear the costs of its growing bellicosity. It will also need to retrofit its alliances in Asia, helping these countries wean themselves from economic overdependence on China, and developing new defenses to steel them from economic bullying.

Over the past 60 years, America has built an alliance system in Asia equipped with arguably the most sophisticated war-fighting capability the modern world has ever known. The question is whether this alliance system can now learn new skills—suited to the kind of economic contest China is waging—and more fundamentally, whether Washington even realizes that new skills are needed.

Jennifer Harris is a senior fellow at the Council on Foreign Relations in New York, and co-author of War by Other Means: Geoeconomics & Statecraft (Harvard University Press, 2016).