Trade coercion to hang over Australia-China relations despite stabilising ties, major new report warns

As the 20th National Congress of China’s Communist Party draws to a close, Australian governments and industry should ready themselves for long-term instability in the economic relationship with their largest trading partner, a major new Lowy Institute Analysis paper warns.

The report Chinese coercion, Australian resilience analyses the impact on key export sectors of Chinese trade measures over the past two years. It finds that China’s informal sanctions and trade blockages have failed to realise their aims. Key Australian commodities have been mostly unaffected, even as the punitive measures in some sectors have exacted a heavy price. Despite bilateral tensions easing between Canberra and Beijing under the new Labor government, it is prudent to plan on the basis that it is still early days in China's use of trade measures against Australia.

Report author Richard McGregor says while Australia’s resilience has been encouraging, the longer-term prospects are less promising. “Given the enduring geopolitical rivalry between the US and China, and Australia’s position as a strong US ally, Canberra should assume that Beijing will continue punitive trade measures in one form or another. The good news, however, is that China will struggle to diversify away from Australia in a number of key sectors.”

Australia has maintained its reputation as a reliable supplier of commodities throughout the downturn in bilateral relations with China, the report finds. Economic enmeshment in critical sectors will not dictate the future course of either country's national security policies, but it can affect China's calculations as geopolitical tensions rise.

Lowy Institute Director of Research Hervé Lemahieu welcomed the release of the report as a detailed snapshot of the resilience of Australia’s economy, but with a bracing warning for the years ahead. “Even as bilateral relations stabilise, trade relations are not likely to normalise,” he said. “The lessons Australia has learned over the past two years should guide governments in planning for a future of uneasy economic interdependence with China. The sectors in which bilateral trade has continued to prosper are not those in which Australian producers are dependent on China, but rather where the two countries are interdependent.” 

KEY FINDINGS

• China’s trade coercion against Australia since early 2020 has so far failed to meet its key objectives: to impose substantial costs across the economy and change Australia’s national security policy. 
• Even as bilateral relations stabilise, Australia should expect punitive measures to remain in place, either in whole or in part, and the cost of them to rise over time as China grows and its market becomes less accessible to Australian producers. 
• Australia should work to entrench its position as an indispensable supplier of key commodities to China. This benefits the Australian economy and gives Canberra leverage at a time when Beijing is trying to use trade as a political weapon.

MEDIA CONTACT

To arrange interviews with Richard McGregor, please contact Shane McLeod, Director - Media and Communications.