The reason is trade diversion: When a trade barrier is erected, businesses seek alternate outlets for their products. If the scale of China’s trade coercion against Australia is unprecedented, it also offers an intriguing experiment: What does a sudden economic decoupling from China look like? With China accounting for nearly 40 percent of Australian exports, one might assume the costs of Canberra’s defiance would be grave.īut in fact, the effects have been surprisingly mild. Iron ore was the only major commodity spared, a purely self-interested move given the dependence of China’s steel industry on Australian supplies. Whereas China usually sanctions minor products as a warning shot- Norwegian salmon, Taiwanese pineapples-Australia was the first country to be subjected to an economywide assault.
But its massive onslaught against Australia was like nothing before. It has previously applied trade coercion during diplomatic disputes to eight other countries: Canada, Japan, Lithuania, Mongolia, Norway, the Philippines, South Korea, and Taiwan. This is not China’s first attempt to force trading partners to toe its line. The trade guns were still smoking when, in November 2020, the Chinese Embassy in Canberra issued a list of “14 grievances” that Australia was expected to correct to return to a normal relationship. Chinese importers were instructed to stop purchasing Australian coal and cotton, and electric utilities were encouraged not to buy liquefied natural gas on the spot market. More tariffs were applied to wine, while customs bans were slapped on wheat, wool, lobsters, sugar, copper, timber, and table grapes. Beef was next, with several Australian producers losing their export licenses.
With the barley ban failing to produce the desired response, China doubled and tripled down.
But it did not have the intended effect of getting Australia to back down: Instead, the government responded defiantly, with Australian Foreign Minister Marise Payne publicly accusing China of economic coercion. Then, in May 2020, China applied massive anti-dumping duties on Australian barley, pricing a $1 billion industry out of its principal export market overnight. The reprisal came just one week later, when the Chinese ambassador to Australia, Chen Jingye, threatened consumer boycotts of several products in response to Australia’s call for the investigation. An incensed Beijing quickly denounced Canberra’s call as an affront and political witch hunt.Īustralia demonstrates that China’s bark is worse than its bite. In April 2020, the Australian government led an international call for an independent inquiry into the still-murky origins of COVID-19 in Wuhan, China. The bargain suddenly broke down last year. This bargain held even when relations hit a rough patch-such as in 20-with trade increasing every year.
The rest is mainly coal, gas, and agricultural products, plus substantial Australian earnings from Chinese students and tourists. Around half of that is iron ore, which fuels China’s insatiable need for steel to fuel its construction boom. It worked: From 2009 to 2019, Australian exports to China tripled to 149 billion Australian dollars (around $110 billion) per year. Over the past several decades, the two countries operated under an implicit bargain to shelter their rapidly growing economic ties from any political differences. China, meanwhile, bristles at what it believes to be Australia’s anti-China stance. Beyond differences on values and human rights, Australia is concerned by China’s increasingly belligerent behavior in the Indo-Pacific.
Economically, the two sides have been increasingly intertwined, with Australia providing many of the commodities on which China’s industry relies. That fact will not be lost on other countries that have differences with China.Īustralia-China relations have long been marked by a fundamental tension. If this is what decoupling from China looks like, Australia’s resilience suggests the costs are far lower than many have assumed. The impacts on Australia have so far been surprisingly minimal. But if Beijing hoped to punish Canberra for its defiance with economic pain-and send a warning to other countries not to oppose China-it has failed on both accounts. It responded with an unprecedented wave of trade restrictions that froze many categories of Australian exports, rapidly decoupling economic ties. When Australia had the temerity to call for an independent inquiry into the origins of COVID-19 last year, China was incensed.