As readers will be familiar, after Australia’s Scott Morrison-led government dared call in 2020 for an inquiry into the origins of COVID-19, China responded with an aggressive campaign of economic bullying. Now, under the Albanese government, the relationship is slowly being restored, and on 18 May, after a meeting between the two countries’ trade ministers, China lifted its ban on Australian timber. Since January, Chinese importers have been quietly buying AUD 1.2 billion of Australian coal. Cotton and copper exports are also resuming, and China is reviewing tariffs on barley, following Australia having suspended its case against them at the World Trade Organisation.
Source: The Economist
When China launched its “economic punishment” against Australia, few thought that the Australian economy would be quite so resilient. The economies of the two countries are of course deeply complementary and connected – with China hungry for resources that Australia has by the container-load. By curbing shipments of everything from timber to coal, lobsters, barley, and wine, on pretexts about trade practices and pest infestations, China effectively tried to impose an AUD 24 billion hit on our exports. Yet Australia is now emerging from 3 years of Chinese coercion in remarkably good shape.
Indeed, last year Australia achieved its biggest-ever trade surplus, equivalent to more than 7% of GDP.
How did this happen?
When the boycott began 3 years ago, Australia’s economy was heavily reliant on China’s markets. Exports of goods and services to China accounted for 37% of Australian outbound trade in 2020. While Australia has relatively few multinationals that manufacture and sell inside China, we were still vulnerable. The Economist’s “index of China exposure” adds goods exports to China, services exports to China and Hong Kong, and the revenue of foreign multinationals’ affiliates operating within China. Australia’s exposure, at 8.2% of GDP in 2020, was double that of America, and close to that of Germany.
Luckily for Australia, it emerged that the two economies were such a good fit that China’s businesses felt as much pain as Australia’s. Some commodities, such as Australian iron ore, were so hard to replace that China chose not to target them at all. Also, Australian exporters were remarkably successful in finding alternative export markets in countries like India, Japan, and South Korea.
After China slapped a tariff of up to 80% on Australian barley, its producers sold it to South-East Asian countries. Our farmers also planted other crops. And Chinese beer-makers had to buy other countries’ barley, which was not as good. When China blocked shipments of Australian coal, it had to buy more from Russia and Indonesia. That left India and Japan short, so Australia sold its coal to them. Australian pain, though not insignificant, was concentrated with lobster fishermen struggling and wine exports to China plunging.
The election of the new Labor government a year ago gave China an excuse to back down. To our credit, Australia had neither capitulated nor shrunk from our principles. In the face of a list of “14 complaints,” we resisted demands to change laws, overturn investment bans, and muffle critics. Rather, under both Coalition and Labor governments, Australia has tied its security policy tighter to America through AUKUS and is doing more diplomatically to counter China’s influence in the Pacific.
How will Australia guard against the risk of a repeat?
China still accounts for almost a third of the total goods and services exports for Australia. But 3 years of Chinese bullying have left a mark. Australia is reducing its reliance on China by signing free-trade agreements with India and Britain. Another, with the EU, will be agreed in due course. Fortunately, we had the wealth, strategy, and natural resources to protect us from intimidation.
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