Australia and China are calling a truce this week in their three-year trade battle, dispelling the notion that a smaller economy always succumbs to economic pressure from a bigger rival.
Australian Prime Minister Anthony Albanese heads to China Saturday for the first visit by a leader from Down Under since 2016. The trip is sign that China has given up on its campaign to punish Canberra for calling for an investigation into the origins of the pandemic, and to trying to force the government to reverse the ban on Huawei Technologies Co., stop criticizing human rights violations and accept Chinese investment into sensitive sectors, among other demands.
None of that has happened, and the concessions Australia did make recently — ending tariffs on wind turbine towers and letting a Chinese firm continue to lease a port — are very limited compared with the expansive list of grievances and complaints that China’s government made over the years. Despite that, Beijing has gradually abandoned measures it had deployed: restarting imports of coal and timber, canceling tariffs on barley and agreeing to examine the ones on wine, with Australia expecting those to be lifted too. China also released an Australian citizen who had been charged with espionage, in what was widely seen as a goodwill gesture.
The rapprochement underscores the limits of China’s power to twist arms through trade policy, experts say. For Australia at least, the economic hit it suffered was not enough to force a serious change in government policy, although Beijing’s continued willingness to impose pain may convince other nations that it’s better to compromise.
“The narrative that China is the world’s second-largest economy and largest trading nation and that confers significant economic coercive power is not borne out by the experience of almost every country that has experienced economic coercion,” according to Darren Lim, a senior lecturer at Australian National University who has written extensively on the issue. “You can get through it, and therefore it is not worth making major political concessions because of fears of economic reprisals.”
Although some wine growers and exporters were hurt by billions of dollars in lost trade, Australia’s farmers and miners found other markets and the economy as a whole showed little sign of pain. Also helping were soaring commodity prices after the Russian invasion of Ukraine, along with China’s reliance on Australian iron ore, which meant that imports from Australia actually hit a record $162 billion in 2021 and have stayed high since.
One perhaps unintended effect of China’s punishment of Australia — and later against European Union member Lithuania — was to draw sustained global attention and opposition to China’s use of economic restrictions as a tool of foreign policy, in ways that previous coercion against Norway, South Korea, Japan or the Philippines over the past decade did not.
The Group of Seven nations made criticism of “economic coercion” a key part of their agenda this year and created a “coordination platform” to fight against it. The EU launched a new “anti-coercion instrument” this year to protect its member countries.
And instead of getting Australia to be less closely linked with the US and its military posture in the Asia-Pacific region, Canberra has become even more tied with Washington, including agreeing to jointly develop nuclear-powered submarines and stepping up military exercises with other US allies such as Japan or the Philippines.
South Korea had been the target in 2016-17, when China retaliated against Korean companies and banned group tours to South Korea over the deployment of a US missile defense system in the country. Retaliatory measures against Korean firms hit sales, and started a slump in the sale of Korean cars which has continued.
“South Korea and Australia largely weathered the punishment, although there was some initial cost to particular sectors or firms,” according to Chong Ja Ian, an associate professor at the National University of Singapore who has researched how states react to Chinese sanctions.
A Lesson For Others
Though Australia’s economy seems to have mostly withstood China’s actions, other countries especially in Asia may not be willing to risk it.
Singapore, Malaysia and perhaps Thailand seem to be more vulnerable to the pressures, Chong said. “These states seem to believe that there is little they can do in the face of PRC economic coercion, and may be better off accommodating Beijing,” Chong said, referring to the country’s formal name, the People’s Republic of China.
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For its part, Beijing has given no sign that it will give up using these tools. In August it banned imports of Taiwanese mangoes, the latest example of restrictions on trade and travel to the self-ruled island which it claims as its own.
Beijing also recently extended a probe into Taiwan’s trade policies, with the investigation seen as a threat to the island’s economy as it could lead to other restrictions on trade. The final report is due on Jan. 12, the day before the island’s presidential election.
The fear is that if the current ruling party wins, the mainland will impose more restrictions and penalties. Even if it doesn’t, the action is seen by some in Taiwan as a threat ahead of the election.
“This is a normal tool now of Chinese statecraft,” ANU’s Lim said. “Every government and the business community at large needs to attach a greater degree of political risk premia to doing business in China.”