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How Australia Withstood China's Trade War

Newcastle
Coal loading terminal, Newcastle, Australia (file image)

Published Feb 8, 2023 7:34 PM by The Strategist

[By David Uren]

It’s too soon to declare an end to China’s economic war against Australia, but the signs are all pointing in that direction, with the meeting between trade ministers of the two countries this week coinciding with the first shipments of Australian coal to China in two years.

What looks like a unilateral Chinese backdown is a remarkable development. Prime Minister Anthony Albanese’s government has made no visible change in policies affecting China, beyond a softening of the at times harsh rhetoric of its predecessor.

China was showing signs of wanting to resume a more normal relationship with Australia before the change of government last May. Australian National University researcher Benjamin Herscovitch highlights the December 2021 speech by Wang Xining, chargé d’affaires at the Chinese embassy, who declared: ‘There are so many common values that we share and present at this challenging juncture. I believe that there is no reason that Australian and Chinese people can’t be good friends.’

China has a very long history of using denial of access to its markets as a tool of economic coercion, going back to the early 20th century when there was an orchestrated boycott of American products to pressure the US to shift its then–racially based immigration policy.

In recent times, there have been numerous episodes of China closing its markets to particular nations over perceived grievances, ranging from Norwegian salmon following the awarding of the 2010 Nobel Peace Prize to imprisoned Chinese dissident Liu Xiabao to the blockages to French products after the 2008 Olympic torch relay was disrupted in Paris.

However, China’s campaign of economic coercion against Australia, launched in May 2020, went much further than its efforts against any other significant economy and included strikes against Australia’s exports of coal, copper, nickel, woodchips, wine, lobster, cotton, barley and beef. Commodities for which there was no feasible replacement, including iron ore, wool and liquefied natural gas, were exempted.

The only analogous, though much less fierce, campaign of Chinese economic warfare was conducted against South Korea in 2016–17, following the US’s installation of its THAAD missile-defence system. Both Seoul and Washington said the move was designed to defend South Korea against missile attack from North Korea; however, Beijing contended that the system’s reach, particularly its radar, extended to China.

Chinese tourism to Korea stopped overnight. The Korean supermarket chain Lotte had 70% of its outlets in China shut down, ostensibly over fire regulations. Hyundai’s car sales in China plummeted by two-thirds, Korean pop stars disappeared from Chinese TV and exports of some consumer goods were blocked.

The campaign lasted for about nine months. China’s decision to end it followed the 19th Chinese Communist Party congress, at which Xi Jinping was anointed leader for another five years, paving the way for him to hold office indefinitely.

It also followed Korea’s election of a more moderate leader in President Moon Jae-in, who had stressed the importance of good relations with China. The ice broken by a meeting of foreign ministers.

While the breakthrough with Australia may appear to follow this template, the huge difference is that the Korean and Chinese foreign ministers struck what China contends is a military agreement, which it renders as ‘the three nos’. The Moon government undertook not to expand the THAAD system, not to enter a missile-defence network with the US and not to enter any trilateral alliance with the US and Japan. It was a humiliating deal for Korea, and China withdrew its boycotts in return.

Korea, which last year decided to add to its missile defences, contends that there was no signed agreement and that the ‘three nos’ simply articulated the Moon government’s policy at that time. However, China believed it had a deal, and friction has intensified between the two countries over the past year as a result.

Any explanation of China’s about-face with Australia is necessarily speculative, but there are several possibilities.

The biggest strategic issue facing China is how to preserve the globalisation that has delivered it such gains over two decades in the face of the US’s increasing rejection of international trade architecture in favour of a more robust policy of containment of China.

China’s ‘coming out’ internationally, following the abandonment of its zero-Covid-19 policy, is consistent with this. Vice Premier Liu He’s speech at the World Economic Forum in Davos last month declared that for China, ‘opening up to the world is a must, not an expediency’, adding that China must oppose unilateralism and protectionism while strengthening international cooperation.

China’s application to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership is designed to cement its economic relations through the Asia–Pacific, using a vehicle that the US designed but then, under Donald Trump’s administration, walked away from.

Starting negotiations to enter the CPTPP requires the assent of all parties. In 2021, Australia’s trade minister, Dan Tehan, explained that while Australia had no principled opposition to China’s admission, it would be impossible to commence negotiations without minister-to-minister dialogue. This was not a veto, he said. ‘These are ultimately decisions which always end up at the ministerial level. There’s never been a free trade agreement that’s purely been negotiated at an officials level.’

It hasn’t been stated publicly, but it wouldn’t be surprising if Australia has given China an indication that it will not block its application. It was striking that directly after his meeting with Xi at last year’s G20 summit in Bali, Albanese stumbled when asked about Taiwan’s application to join the CPTPP, saying that it was a trade agreement only between states, implying that Taiwan would be excluded. Albanese’s office swiftly corrected the record to make clear that the CPTPP is an agreement between economies and is open to Taiwan; however, the prime minister’s formulation reflected Chinese talking points.

So it’s likely that China’s CPTPP application has been discussed and Australia’s support for negotiations over China’s accession to at least begin may have been on the agenda at yesterday’s online meeting of Australian Trade Minister Don Farrell and Chinese Commerce Minister Wang Wentao.

As US President Joe Biden’s administration intensifies its efforts to isolate China, Beijing’s campaign against Australia looks increasingly like an own goal, pushing Australia into closer alliance with the US, as evident in both AUKUS and the Quad arrangement, without achieving any obvious gains.

Australia had been extraordinarily successful in diversifying its exports in the face of China’s boycotts. China’s share of Australia’s exports dived from 42% in July 2021 to just 29% by August last year, where it has remained for the last four recorded months. Australia’s export earnings in the year to November of $585 billion were $200 billion, or 55%, higher than in the 12 months before China started rejecting Australian cargoes.

Before the boycotts, China was buying a third of Australia’s metallurgical coal and a quarter of its thermal coal. Australia was able to replace these markets entirely with additional sales to India, South Korea, Taiwan, Japan and the European Union. China was left facing episodic blackouts because of coal shortages, while the lifespan of its steel mills will have been reduced through the use of inferior coal for which they were not designed. One of the largest coalmining companies in Australia affected by the boycott was Yancoal, which is majority owned by a Chinese state-owned company.

Other commodities like cotton and barley were able to diversify similarly despite China having taken the lion’s share of their sales before the boycott. Wine and lobster were among the few industries that were really hurt.

There are many differences between Australia and South Korea, but it’s possible that the export sectors targeted by China have less political sway in Australia than do the chaebol conglomerates in Korea. While there were some grumbles from Fortescue Metals Group founder Andrew Forrest, there was little concerted pushback from the Australian resources and rural sectors over government policy towards China, which was increasingly dominated by security considerations.

In an increasingly fractious world marked by economic hostilities, the lessons from the Australian experience would appear to be that:

  • faced with coercion, a country may have success if security policy assumes priority over economic policy
  • commodity markets are enormously flexible, making it hard to sanction them—as Europe has shown over Russian gas and as Russia may yet show over its oil
  • branded products, such as wine, are more vulnerable
  • sanctions can hurt the country inflicting them
  • a little bit of leverage, as Australia may be demonstrating over China’s mooted application to join the CPTPP, can go a long way when it affects the interests of great powers.

David Uren is a senior fellow at ASPI.

This article appears courtesy of ASPI's The Strategist and is reproduced here in an abbreviated form. It may be found in its original form here.

The opinions expressed herein are the author's and not necessarily those of The Maritime Executive.