In April of 2020, as countries around the world went into lockdown and the global economy began to crash, questions started being asked about the origins of the novel coronavirus and how it was able to spread from Wuhan, China so quickly. Information quickly surfaced that China had originally tried to contain the outbreak independently and did not disclose knowledge of the virus to global health authorities. As the global death toll began to mount, Australian Prime Minister Scott Morrison was among the most prominent voices calling for an independent inquiry conducted by the World Health Organization (WHO) into the origins of COVID-19.
China immediately took offense to these calls, stating they were “petty tricks” and warning that they could damage the relationship between the two nations. This quickly escalated into threats of economic coercion from the Chinese ambassador; a threat not taken lightly as China is the recipient of roughly a third of Australian exports, making it their largest trading partner. Since then, the economic intimidation has turned into actions, with China slapping tariffs on Australian wine and barley, and forbidding ships loaded with Australian coal from offloading in Chinese ports.
Despite these politically-motivated instances of economic bullying, China has not sanctioned those Australian exports crucial to its domestic economy, namely mined iron ore used for steel manufacturing. Instead, China’s strategy appears to be one of political messaging to Australia and other countries who depend on China economically, suggesting that it is in their interest to keep quiet on internal Chinese affairs if they want continued market access. However, this strategy could turn out to be a miscalculation on China’s end. Australia’s situation could be interpreted as both a catalyst for other countries to seek economic diversification away from China and a demonstration that the Chinese economy remains dependent on imports and is thus vulnerable to sanctions itself.
Prior to the outbreak of COVID-19, tensions between Australia and China had already been mounting. State-backed telecommunications company Huawei was banned in 2018 from installing new communications hardware in Australia on national security grounds. For much of 2020, Australia experienced increased instances of cyber attacks against its national systems and, suspecting that a state-actor was responsible, pointed the finger at China. Then, last fall, the Chinese embassy launched a stunning attack by disclosing 14 grievances they had with the Australian government, including the criticism over human rights concerns in Xinjiang and Hong Kong, and the unfriendly characterization of China by independent Australian media outlets.
This list of grievances coincided with the trade war that had been occurring since June, as relations between the two countries deteriorated to an all-time low. The punitive tariffs China has placed on Australian exports go as high as 200% in the case of wine, making these products highly uncompetitive in a crucial export market. In 2021, these tensions show little sign of easing up, yet upon closer reflection, these coercive measures may not have the crippling effect as might initially appear.
There is little question that Australia, like many other countries, relies heavily on China as a trading partner, and a complete trade embargo would be crippling for the Australian economy. However, the chances of this happening are incredibly unlikely, as China has been selective with the types of import controls it has imposed. In recent decades, much of China’s astonishing economic growth can be attributed to policies aimed at increasing industrial output through a transition from agriculture to manufacturing and construction. China’s COVID-19 recovery plan is no different, with large amounts of stimulus being directed to infrastructure projects in order to ensure continued industrial output. For this to happen, imported Australian iron ore is essential, as it accounts for approximately 60% of all of China’s iron ore imports from 2019 to 2020.
While 80% tariffs on products like barley sound harsh, the current sanctions China has imposed amount to only 4% of all imports from Australia. If China’s desired effect is to substantially punish Australia for what it views as disparaging comments, it would require either depriving its domestic industries of the iron ore needed for steel manufacturing or diversifying its imports from other countries. The former seems unlikely as China does not wish to hinder its economic growth, while the latter could take years to occur, given the difficult nature of diversifying supply chains. Thus, China’s current spat with Australia can be viewed as political posturing rather than substantive action, one meant to send a message to other countries who may be considering voicing similar concerns on Chinese affairs.
Australia is far from the first Western democracy to be on the receiving end of economic threats from China in recent years. In 2018, China enacted restrictions on Canadian agricultural imports and arbitrarily detained two Canadian citizens over the arrest of Huawei executive Meng Wenzhou. Yet Canada did not succumb to Chinese demands for her release to relieve economic hardship on Canadian farmers.
Contrarily, continued and aggressive behavior by China could result in countries uniting to counter China as partners or in forums like the World Trade Organization (WTO) or the Quad, a new strategic alliance between the United States, Australia, India, and Japan. Public opinion of China in Western countries has reached all-time lows. After the onset of the pandemic revealed an overreliance on China for medical supplies, many may seek to diversify supply chains themselves.
The current tensions Australia is facing are part of a new reality that governments will have to manage when maneuvering political and economic relations with China. Both as an import and export market, China is crucial to economies like Australia, which have taken full advantage of its rapid growth. Yet many of China’s territorial and human rights controversies are impossible for other governments to ignore. Objecting to China’s abusive policies like Hong Kong’s new security law is a necessity and a duty for countries to stay consistent with defending human rights and international law. It will then be on countries like Australia to approach threats of economic coercion pragmatically, by being cognizant of the fact that China’s political agenda is also vulnerable to trade restrictions and impediments on its economic growth.