The China-Australia Trade War
BY RHEA LOUIS / DECEMBER 18, 2021
Amidst the increasing tension between the two geopolitical foes, will Australia be the first to show the world what decoupling from China looks like?
iplomatic relations between Australia and China, both at an official and non-official level, were initiated when the former Prime Minister of Australia, Gough Whitlam, visited China over 40 years ago. Whitlam’s visit to China was considered to be a milestone in establishing the Australia-China relations and has been credited for the rapid expansion of trade between the two countries as well as prompting other Western countries to follow suit.
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Since the 1970s, China’s growth has entailed investment in infrastructure, urbanisation and growth in manufacturing leading them to have an insatiable demand for Australia’s natural resources. On the other hand, Australia’s higher education system is highly reliant on fees from Chinese students, who account for 40% of international students in the country, making China the biggest market for Australia’s educational services. Thus, leading to the development of a two-way investment relationship between the two countries.
Pictured: Future China Trade Agreement by Nicholson via Google
Over the years, China has grown to be one of Australia’s largest trading partners in terms of both imports and exports. Accounting for more than 26% of the country’s trade with the total imports being worth more than USD 33.4 billion in 2009. Prior to this, the Chinese economy was largely rural and constituted less than 1% of the global trade. Australia has also constituted to be the sixth-largest trading partner of China, the fifth biggest in terms of imports and tenth biggest in terms of exports.
This deal led Australia to enjoy a trade surplus of nearly USD 34.6 billion with China, exporting goods worth more than USD 81.4 billion and importing nearly USD 46.9 billion.
The ties between the two countries deepened even further in 2014 after the signing of the Free Trade agreement according to which, 95% of major Australian goods such as, coal, barley, wine, etc. could enter China tariff-free. This deal led Australia to enjoy a trade surplus of nearly USD 34.6 billion with China, exporting goods worth more than USD 81.4 billion and importing nearly USD 46.9 billion.
Pictured: The Nosediving by Amit Bandre via the New Indian Express
However, the relations between the two countries would start to fray in 2015, when China started to envision the inducement of long term strategic, political and economic influence on Australia. The Chinese state-linked hackers evoked cyberattacks on the Australian Parliament, the Australian National University and the Bureau of Meteorology and abused Australia’s Chinese-language media by coercing, bullying and intimidating any outlet daring to depart from the Chinese Communist Party’s (CCP) line in an effort to acquire a dominant position over the island nation. They also tried to build their military might in the nation by squeezing Hong Kong and Taiwan and moving them southward towards Australia. To avoid a situation where the Chinese government started using the Australian communities to its advantage, Australia brought about stricter rules for foreign investors, restrictions on foreign public donations and guidelines against foreign interference in universities.
Australia became the first country to publicly block Huawei, a leading Chinese Multinational tech company, from participating in the country's 5 G network programme due to the fear of security vulnerabilities.
The rift further increased in 2018, when Australia became the first country to publicly block Huawei, a leading Chinese Multinational tech company, from participating in the country’s 5G network programme due to the fear of security vulnerabilities. And what followed in 2020, during the Covid-19 pandemic, only made matters worse. Australia’s Prime Minister, Scott Morrison, joined 14 other countries to call for an inspection regarding the cause of the Covid-19 outbreak after the Australian Border Security Force (ABSF) intercepted a shipment containing faulty masks and personal protective equipment from China.
This led the Chinese government to blacklist 35% of Australia’s beef exports, impose 80% tariff on Australia’s barley imports, completely block coal imports and impose tariffs ranging from 107.1% to 212.1% on imported wine. These targeted exports constituted 1.3% of Australia’s GDP and were worth USD 25 billion in 2019.
Australia, in retaliation, cancelled its agreement with the Belt and Road Initiative (BRI), a global infrastructure development strategy of the Chinese government, which envisioned to construct overland routes for road and railway transportation through the landlocked areas of Central Asia, a dream project of the CCP. Australia further countered this initiative by being a stakeholder of the Blue Dot Network, along with the US and Japan. This is an initiative, which also aims to work towards global infrastructure development. China then hit back, warning Australia to distance itself from the US, accusing the government of having a cold war mindset and refusing to engage in further economic dialogues with Australia.
Since late 2020, many of the targeted industries of Australia have been negatively affected by the growing rift between Australia and China, leading many Australian farmers to plead with their government to restore their ties with China.
Pictured: World Trade by Roger Wilkerson via Pinterest
This induced the Australian government to diversify and open new markets to blunt the impact of China’s trade pressure. For instance, the coal exports from Australia to the rest of the world increased by nearly USD 9.5 billion, with India being a notable participant. Therefore, although the total value of exports to China fell by USD 10 billion overall, the annualized value of these goods to other markets increased by USD 14 billion. This led Malcolm Turnbull, the Prime Minister of Australia, to state that China’s campaign aiming to make Australia more compliant had backfired.
Diversifying trade away from China will not be easy as Australia’s limited trade deal with India, although provides some hope to exporters, is unlikely to fill China’s economic shoes
However, diversifying trade away from China will not be easy as Australia’s limited trade deal with India, although provides some hope to exporters, is unlikely to fill China’s economic shoes. With Beijing depending immensely on Australia for its source of iron ore, Australia has maintained high export levels to China thus, softening the blow of the China-Australia rift for now. However, the Chinese government’s punitive trade action has set their eyes on commodities that will form the backbone of the future trade in Australia, such as lobster, wine and they have also started warning their students against studying there. In addition to this, since China has now decided to rein in its steel industry, the price of iron ore has dropped globally by 39% and the demand for it will soon start to wane too.
Pictured: by Marc Aspinall via pinterest
With China being a significant driver of Australia’s prosperity and Australia being the home for more than 1.2 million people of Chinese ancestry, economists suggest that both countries would be better off patching up the rift and looking at the bigger picture. However, with both countries unlikely to back down soon and the Australian government counting on the World Trade Organisation (WTO) to intervene and mediate the five-year-long dispute, the trade war seems set to continue.
Keywords
geopolitics, trade war, China-Australia, CCP, Huawei, World Trade Organization, Scott Morisson
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References
Mercer, P. (2021, September 2). China accuses Australia of meddling in Papua New Guinea vaccination efforts. VOA.
Suri, N. (2020, July 13). Australia-China relations: The Great Unravelling. ORF. https://www.orfonline.org/research/australia-china-relations-the-great-unravelling-67204/.
Laurenceson, J., & Pantle, T. (2020, October 20). The Australia-PRC ECONOMIC Relationship: Greater distancing or Closer mutual dependence? UTS ACRI. https://www.australiachinarelations.org/content/australia-prc-economic-relationship-greater-distancing-or-closer-mutual-dependence.
Jacob, M. (2021, July 20). Explained: How China-Australia Relations Collapsed. The Week. https://www.theweek.in/news/world/2021/07/20/explained-how-china-australia-relations-collapsed.html.
Au-Yeung, W., Keys, A., & Fischer, P.(2012, December 12) Australia-china: Not just 40 years. The Treasury, Australian Government.
https://treasury.gov.au/publication/economic-roundup-issue-4-2012/australia-china-not-just-40-years
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