A sideways look at economics
The annual announcement of the Nobel Peace Prize is a prestigious political event that always sparks attention. US President Donald Trump repeatedly expressed his desire to win this year’s prize, but in the event the Norwegian Nobel Committee awarded the prize to Venezuela’s opposition leader María Corina Machado for her work in promoting democratic rights. Whilst reading the news I was reminded of the Nobel Committee in 2010 awarding the prize to Chinese dissident Liu Xiaobo, who was imprisoned in China at the time. In retaliation, China abruptly ceased economic and political relations with Norway, and imposed trade barriers on Norwegian goods. This particularly affected salmon exports.
Norway and China’s relationship was a positive one in the 1990s and early 2000s. Norway’s trade with China was increasing, and the two countries were negotiating a free trade agreement. These negotiations came to a halt following the Nobel Peace Prize award to Liu Xiaobo; plans for a free trade agreement were shelved and only dusted off again six years later, in 2016. The fact that the Nobel Committee is an independent body from the Norwegian government[1] did not soften China’s reaction — during the same period, all bilateral and multilateral political contact between Norway and China froze. Moreover, China sanctioned Norwegian exports. In 2010, Norway’s largest export sector to China was fish (exported to China both for consumption and for cheap processing), and Norway held a very large market share in China’s imports of salmon. Following the peace prize ceremony in 2010, Norway’s salmon exports to China almost halved the following year, as can be seen from the chart below.
Interestingly, when China’s imports of Norwegian salmon started to decrease, exports to another country increased sharply: Vietnam. This continued until Norway’s relationship with China normalised. In 2018, salmon exports to China tripled, mirroring a sharp decrease in exports to Vietnam. This suggests that Vietnam was used to circumvent China’s trade restrictions. In 2018, a network of Chinese smugglers was arrested in China for smuggling Norwegian salmon via Vietnam. Chinese authorities reportedly had evidence of contact between a Chinese company and Norwegian exporters to deliver salmon to China via Vietnam.
Despite the sharp decrease in salmon exports to China, the economic impacts of China’s sanctions on Norway were less than feared: annual growth in total Norwegian salmon exports to the world was 7% in 2011, decreasing slightly from 10% the year before. What the counterfactual would have been of course depends on a) how much Chinese exports would have grown without the peace prize, and b) whether exports to Vietnam would have increased without the China-Norway conflict. However, the fact that exports to Vietnam decreased again in 2018 when Norwegian relations with China normalised suggests that the pick-up in exports to Vietnam may not have occured without China’s dispute with Norway. This implies that the decrease in exports to China was offset by the increase in exports to Vietnam. Furthermore, the muted consequences for Norwegian exports could also be due to China representing less than 2% of Norway’s total salmon exports before the sanctions were imposed.
It is important to note that although the fish industry, and in particular salmon exporters, suffered from the Chinese sanctions, in general, Norwegian exports to China increased in the period following the peace prize award. This is not to say that the sanctions did not have a considerable impact on Norway’s fish industry: one study found that in the three years following the announcement of the peace prize, Norway’s total direct fish exports to China would have been 10–14% above the levels observed with sanctions in place, and direct total exports 10–16% higher.
One other thing of note occurred while relations between Norway and China were in the deep freeze. Norway appears to have made a conscious decision to avoid the ‘Dalai Lama effect’ — a term that refers to the dip in a country’s trade with China after its political leaders meet the Dalai Lama: on average, countries experience a 16.9% decrease in exports to China in the year of a meeting and the year that follows. In 2014, when the Dalai Lama visited Norway on the anniversary of his Nobel Peace Prize, the Norwegian government announced that it would hold no official meetings with him — a decision which received massive criticism.
The 2010 peace prize announcement put Norway in a geopolitical squeeze: when values and geopolitical demands clash, what is the optimal response of a small, open economy? In a world where trade barriers are increasingly used as a geopolitical tool, are countries willing to give up some of their values for economic gains? In the face of economic sanctions, there are two lessons learned from Norway’s dispute with China: a) when faced with sanctions that may have a large impact on the economy, Norway was willing to sacrifice politicians’ public support of a human rights activist; and b) Norwegian exporters were able to offset the negative shock to exports through circumvention via Vietnam. Furthermore, the hit to trade was only a temporary shock for Norway. Its relationship with China improved in 2016, when talks about a free trade agreement resumed, and in recent years, Norwegian salmon exports to China have increased substantially. Fortunately, Norway has not seen negative consequences following a peace prize award as extreme as the 2010 freeze in Chinese-Norwegian relations in any other years. That does not mean this year’s prize did not come without reactions — shortly after the announcement, Venezuela closed its embassy in Oslo.
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[1] Note that although independent from the Norwegian government, the Nobel Committee largely consists of politicians from the major Norwegian political parties