Trade spats renew Australia’s China dilemma

Dom Dwyer | Australian Foreign Policy Fellow

It’s hard not to have felt the splash of China’s recent shots across the bow. A few weeks ago, when tariffs on Australian barley followed Australia’s push for an international inquiry into the origins of COVID-19, there remained a sliver of plausibility in Trade Minister Simon Birmingham’s suggestion that the timing was mere coincidence. But later, when Australian beef exporters were blocked from Chinese markets, and Chinese tourists and students received a racism-related warning not to travel to Australia, the pattern became impossible to ignore. Australia, it seems, is being punished—disciplined for its attempts to put China in the hot seat over early fumbles in its handling of the COVID-19 pandemic.


And yet, if China is attempting to coerce Australia, it doesn’t seem a very effective way of doing so. As some commentators note, China’s tariffs aren’t of much consequence when global trade is significantly reduced. And travel warnings can’t inflict much harm when our borders are closed anyway.


But that argument probably misdiagnoses China’s intention. China would know that these enactments are largely symbolic so long as global trade and travel are on ice. The point is probably not to hurt us such that we back down, but signal a willingness to use such instruments when they do hurt, and so dissuade us from being as daring in the future.


Either way, China’s willingness to turn the thumbscrews has sharpened the consensus as to its antagonistic intentions. Australian policymakers now face the difficult choice of deciding how best to respond.


That choice isn’t difficult if you listen to business, however. According to the Australia-China Business Council, the Government must patch up relations, avoid antagonising the new regional heavyweight, and revive the win-win flow of economic exchange. You can almost see China nodding from the sidelines: there’s no doubt that a quiet Australia, who zips its lips for uninterrupted trade, is the kind of passive player it wants to deal with.


Yet even if Australia felt its economic ties were too important to risk jeopardising, it’s hard to imagine this position being sustainable. If Australia succumbed to China’s economic coercion once, China would surely repeat such threats in the future. Under an ever-looming storm-cloud of punishment, Australia could become pre-emptively self-censoring on issues related to human rights, freedom-of-navigation, and political interference. Trying to preserve economic ties at all costs would therefore seem to trap Australia in a Faustian bargain.


All the better, you’d think, that the Government has taken the opposite approach. Prime Minister Morrison recently affirmed that Australia would never trade away its values, his confidence likely buoyed by public outrage at the new intensity of Chinese pressure.


But while the Government appears willing to resist China’s threats for now, it again isn’t clear that the approach is sustainable. It’s easy to stand tall when the public supports some face-saving tough talk. It’s another story when, in a year, the lobbyists of eviscerated export industries come knocking, or a recession-weary electorate demands the restoration of job-creating trade. Will the Government still not trade away our values then?


Recognising that this may not be possible, others have stressed the need to diversify our economic relationships.


As always, though, diversification is easier said than done. It remains unclear who would make up the shortfall of Chinese consumption of goods like coal and education. On both counts, India might be an option. But given India’s own expansion of coal production, it’s hard to imagine Australian coal imports becoming more than a complement to domestic fuel sources. And surveys indicate persistent fears among Indians regarding the safety of studying here, casting doubt on the idea that Indian students would queue to fill empty seats left by Chinese counterparts.


Strategic diversification might have more hope, then. And cultivating India as a counterweight to China was probably the rationale behind Morrison’s recent virtual summit with Indian Prime Minister Narendra Modi, in which both countries signed a new strategic partnership. Closing ranks after both faced recent pressure from China, India and Australia are warning China of the consequence of further bullying: a crystallising opposition against its rise.


But it remains to be seen whether Australia can commit to this new posture. Don’t forget that Australia was uninvited by India to the Malabar naval exercises with the US and Japan for years—all because, in 2007, Australia backed out of the drill, citing China’s displeasure. Australia has been agitating to re-join the provocative naval drills, but when China inevitably threatens punishment if we do, will we act any differently to 2007?


In this climate, probably. But still, it’s clear that diversifying ties with countries like India—far from a third way—simply defers the devilish choice we’ll have to make: kowtow to enjoy ongoing trade, or stand up for our values and interests at severe economic cost?


Dom Dwyer is the Australian Foreign Policy Fellow for Young Australians in International Affairs.

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