By comparison with the Sino-Australian political downturn from 2016, the development of bilateral economic ties has generally improved across these years. To some extent, Sino-Australian economic cooperation can be regarded as the cornerstone of their bilateral relations. That said, it is interesting to ask what is the nexus between political relations and trade? Do poor political relations really devastate trade? By looking at Sino-Australian trade, I would argue: not necessarily. Positive political relations and bilateral trading can mutually benefit one another, but trade volume is not directly associated with political relations per se.
Dr Yi Wang contends that trade variations have usually sprung from the alteration of domestic economic policies rather than in political relations, except for situations where politicians weaponize economic policies to achieve political aims. Furthermore, Professor James Laurenceson believes that the external economic ties are not like security or political issues that can be decided by officials but depend on “market forces–economic complementarities and purchasing power” that only China can offer to Australia at present. Also, Allan Gyngell believes that “from minerals and natural gas to horticultural products and sophisticated services, Australia is unusually well-placed to meet Chinese demand”.
Even before the diplomatic recognition period, the wheat trade was a notable development, and China was “the sixth largest wheat market for Australia in the 1960s”. In fact, the bilateral trade relations to a considerable scale can date back to 1912. At the beginning of the 20th century, agricultural products started to take up a larger part of Australian exports to China. Arguably, the lack of official relations between the two countries did not prohibit Sino-Australian trade relations.
After the establishment of Sino-Australian diplomatic relations in 1972, and particularly after the Deng Xiaoping’s economic reform in 1978, there has been an enormous expansion in the Sino-Australian trade. According to the Australian Embassy China, China superseded Japan and grew into the largest trade partner of Australia in 2007 and became the largest export market of Australia in 2009.
In 2015, the two governments signed the China-Australia Free Trade Agreement (ChAFTA). As the representative of the Australian government and signatory to the ChAFTA, Minister for Trade and Investment Andrew Robb said that
This historic agreement with our biggest trading partner will support future economic growth, job creation and higher living standards through increased goods and services trade, and investment. China, with its population of 1.4 billion people and rapidly rising middle class, presents enormous opportunities for Australian businesses well into the future.
Posited on the ChAFTA, more than 86% of Australian goods exports to China became duty-free. In fact, when the two countries fully implement ChAFTA, this number should rise to 96%. Also, the Australian service industries gain from the entry to China’s service market with the example of China being the largest origin of international students.
In 2017, Australia exported goods worth USD $85 billion to China, which is more than twice as much as its second largest customer Japan, USD $34.6 billion. In the same year, Australia imported goods worth USD $47 billion from China, which is also more than twice as much as the second placed nation the United States, USD $20.5 billion. In 2019, Chinese students accounted for over 30% of international student enrolments in Australian universities, far higher than the second largest group, Indian students, encompassing 18% of international enrolments.
Reflecting the several decades of economic relations, the shock of the Tiananmen Incident in 1989 had little influence on bilateral trade. Also, before the bilateral diplomatic recognition in 1972, there was a strong trade relationship between China and Australia, as mentioned above. In 2019 despite the increasingly strained Sino-Australian relations, Australia’s exports to China “reached a record 38 percent or AUD $117 billion” from 34 percent in 2018, which is “more than any other country”. Professor Peter Drysdale argues that although the Australian government has not achieved a lot in Sino-Australian relations, the trade has continuously grown. By comparison, in the mid-1980s, the Australian exports to China fell in the background of cordial and promising Sino-Australian relations.
Thus, it is possible to say that Australian trade relies on China. To stress this reliance on China, the Chief Economist of PWC Jeremy Thorpe suggests that the Australian economy could lose 3-5% of GDP growth in the event of a nose-dive in the Chinese economy. An all-out Sino-Australian trade war may lead to the catastrophic loss of 6 percent of Australian GDP, as researched by Rod Tyers and Yixiao Zhou. This establishes a key economic relationship between the two nations, edging on reliance on behalf of the Australian economy upon China.
However, this situation might change from 2020 as political tensions spilled over into the economic sphere of bilateral relations, with both sides accusing each other of weaponizing economic ties for political maneuver.
Beijing has condemned Australia for weaponizing the notion of national security to prevent Chinese investment. In 2018, Australia became the first country to officially ban China’s Huawei and ZTE from its 5G network due to security concerns. If the Huawei case is still debatable for national security, the blocking of the sale of Lion Dairy to China’s Mengniu in 2020 is just egregious, argued by Geoff Raby, a former Australian ambassador to China. Raby and Laurenceson consider that the Lion Dairy deal has no national security or strategic justification and the blocking only sends an antagonistic signal towards Chinese investment in Australia, especially as the Australian Foreign Investment Review Board approved this. Notably, Chinese investment plummeted from AUD $ 16.5 billion in 2016 to only 1 billion in 2020, partly because of the impact of the Covid-19 and China’s economic policy adjustment, but it also indicates the increasingly negative attitude of Chinese investment towards Australia.
Canberra has blamed China for Beijing’s economic coercion. After the Morrison administration advocated for an independent Covid-19 inquiry without consulting Beijing first, trade actions have been taken by Beijing against a series of Australian goods such as barley, cattle, wine, cotton and coal. For example, the Institute for International Trade’s report indicates “the share of rock lobster imports collapsed from 44 per cent in the 10 months to October 2020 to 1.5 per cent in November, while wine imports fell in December 2020 to their lowest monthly level in nearly two years”.
Even so, another factor is worth noting. The aforementioned report argues “the February 2020 US-China Economic and Trade Agreement commits China to expand its purchases of US goods and services has possible implications for around one-third of China’s merchandise imports from Australia (or two-thirds of imports other than iron ore)”. However, “the extent to which rapidly growing US-China trade is displacing Australia-China trade is difficult to judge precisely, because it merges with our bilateral problems with China”. The pandemic has also revealed the fragility of Australia’s supply chains with an example that Australia has to import critical medical equipment from China.
All these factors have led to a need in Australia to shore up vital industries and trade diversification away from China. A new manufacturing strategy has been issued as the centerpiece of the five-year blueprint in Canberra, targeting employment creation and industrial revitalization. In this plan, securing sovereign capacity in crucial industries is the top priority, even though imports from China may be less costly, which indicates Canberra’s trade diversification intention. Meanwhile, the Morrison administration has actively sought to sign trade deals with other trade partners such as the UK, Japan and ASEAN countries.
So where will the bilateral trade go? Despite Canberra’s endeavor in its market diversification agenda, China’s share of Australian exports soared, hitting an all-time high of 48.8 percent in June 2020. Laurenceson illustrated that “the total value of Australia’s goods exports to China fell by only 2 per cent in 2020 as China proved unwilling or unable to wean itself off big-ticket items like iron ore”. Notably, the 2020 Asialink’s report illustrated “India will not be the next China for Australia, and Southeast Asia, Japan and South Korea are all important markets but without China’s scale for the same commodities and services”. Now it is up to time to tell the effect regarding the weaponization of trade.
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Jon Yuan Jiang is a PhD student currently studying at the Queensland University of Technology, Australia, focusing on the Belt and Road Initiative. He completed his master’s degree in political science at Moscow State Institute of International Relations as a Russian Speaker and bachelor’s degree of law at Shanghai University. He served as an Account Manager of ZTE Corporation and special correspondent in HK-based Asia Weekly, both in Moscow. He is on Twitter as @jiangyuan528 and LinkedIn as Jon Yuan Jiang.