Thursday, July 29, 2021
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Standing Up to China Comes at a High Price for Australia

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What You Need To Know

Australia is showing the rest of the world just how bad things can get when you stand up to China.

Ties between the two key trading partners have been strained since 2018 when Canberra barred Huawei from building its 5G network. But relations have really been in the deep freeze since Prime Minister Scott Morrison’s government in April led calls for an inquiry into the origins of the coronavirus outbreak — a move that bruised China’s pride and unleashed a torrent of criticism that Australia is a puppet of the U.S.

Economic retribution has been swift and wide-ranging. Beijing has placed crippling tariffs on Australia’s barley exports, halted beef imports from several large meat plants, warned its citizens against holidaying or studying in Australia and ordered traders to stop buying at least seven commodities including coal, copper and wine. It’s a marked reversal in the once cordial relationship that saw Australia host a state visit by President Xi Jinping in 2014 and sign a comprehensive free-trade agreement a year later.

By The Numbers

  • 34%The proportion of Australian exports shipped to China in 2019
  • A$252 billionThe value of two-way trade between Australia and China
  • 41%The proportion of Australians who view China as more of a security threat than an economic partner, according to a survey by the Lowy Institute

Why It Matters

For the world’s most China-dependent developed economy, Beijing’s retaliation comes at a bad time as Australia tries to pull out of its first recession in almost 29 years. Still the big ticket items of iron ore and liquefied natural gas, which together make up more than 50% of Australian exports to China, have been unaffected.

More broadly, the one-sided trade war shows China’s propensity to use trade as a diplomatic cudgel and demonstrates its brand of aggressive “wolf warrior” diplomacy that’s strained ties with countries including Canada and the U.K.

Ongoing reprisals mean Australia needs to boost under-developed trading relationships with Asian powerhouses such as India and Indonesia and ink new free trade deals with the EU and U.K., following agreements in the past decade with nations such Japan and South Korea.

Aware that it’s exposed by its huge border and small population on a continent that’s thousands of miles from major allies, Australia is ramping up defense spending and is seeking to shore up security ties with similar “like-minded” democracies. In a bid to create a unified stance against Chinese expansionism, Australia is seeking to beef up its role in alliances such as the U.S.-backed Quad and Five Eyes intelligence-sharing network.

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