Australia-China Tensions Simmer Amid Trade War and AUKUS

Introduction

In a speech about the impact of the ongoing trade war with China on Australia, Treasurer Josh Frydenberg said that the “economy has shown itself to be highly resilient” (Department of the Treasury of Australia, September 6). In his address, Frydenberg conveyed a defiant message to Beijing that Australia will not be deterred by economic coercion. Frydenberg’s speech is part of a series of recent episodes that have driven escalating tensions in Sino-Australian relations.

In response, Chinese state-owned media outlets published articles criticizing Frydenberg’s remarks. An op-ed in the Global Times described Frydenberg’s thinking as “deluded” and his speech as “parroting” the rhetoric of US officials (Global Times, September 7). Articles from Xinhua frequently cited the analysis of James Laurenceson, director of the Sydney-based Australia-China Relations Institute, who said that Australia should not “automatically” follow the United States in viewing China as a “strategic competitor” (Xinhua, September 14).

This exchange of rhetorical barbs has spiraled into a China-Australia trade war. Since early 2019, Beijing has imposed restrictions and tariffs on a host of Australian exports such as wine, barley, sugar, lobster, coal, and copper ore (Australian Broadcasting Corporation, December 16, 2020). Australia has responded by voicing concerns about China’s increasingly assertive behavior in the Indo-Pacific region, calling for an independent inquiry into the origins of the coronavirus, and most recently, joining AUKUS. In collaboration with Britain and the United States, Australia will receive nuclear-powered submarine technology through the security pact in a trilateral effort to counter Beijing, which China claims undermines nuclear nonproliferation norms (Xinhua, October 13). It has been nearly a year since the start of the trade war and a month since the announcement of AUKUS. Current relations remain tense and their future uncertain.

Background

Ties between China and Australia were not always so frosty. Less than a decade ago, both countries enjoyed a warm relationship. In his 2014 visit to Australia, Chinese President Xi Jinping received an enthusiastic ovation and said that the friendships between the people of both nations were “able to climb over mountains and fly over seas” (Ministry of Foreign Affairs of the People’s Republic of China, November 17, 2014). One year later, both states signed a bilateral free trade agreement (Ministry of Commerce of the People’s Republic of China, March 27, 2017). In October 2018, Victoria, the wealthiest state in Australia, signed a memorandum of understanding for the Belt and Road Initiative with China’s government.

But relations started to sour over concerns about Beijing’s expanding political influence in Canberra. Worsening US-China relations also heightened Australia’s tensions with China, making it more difficult for Canberra to straddle the middle ground between both superpowers. In 2018, Australia became the first country to publicly ban Chinese telecom firms Huawei and ZTE from constructing its domestic 5G network (The Sydney Morning Herald, August 23, 2018). Earlier, Australia urged Beijing to abide by the 2016 Hague tribunal ruling that rejected China’s expansive claims in the South China Sea. In a fiery op-ed, China’s state-backed Global Times warned: “If Australia steps into the South China Sea waters, it will be an ideal target for China to warn and strike” (Global Times, July 30, 2016). Relations further plunged in 2020 when Prime Minister Scott Morrison called for an independent investigation into the origins of COVID-19 (Consulate General of the People’s Republic of China in Sydney, July 14, 2020). Hu Xijin, the editor-in-chief of the Global Times, responded by characterizing Australia as “chewing gum stuck on the sole of China’s shoes” on Weibo, China’s version of Twitter. In August 2020, Chinese authorities detained Cheng Lei, a popular Chinese state-television news anchor of Australian descent, and charged her with allegedly “supplying state secrets overseas” (Australian Broadcasting Corporation, April 28). Finally, this year, the Australian government canceled Victoria’s BRI agreement (Minister for Foreign Affairs of Australia, April 21).

Trade War

China is Australia’s largest trading partner by far. In 2007, China overtook Japan to become Australia’s biggest trading partner, and today accounts for 31 percent of Australia’s global trade (Department of Foreign Affairs and Trade of Australia, accessed November 12). Australia’s economy is heavily dependent on trade and particularly its exports of natural resources. China purchased 39.1 percent of Australia’s total exports in 2019, which included a whopping 81.7 percent of its iron ore (Observatory of Economic Complexity, accessed November 12).

Beijing has sought to punish Australia’s tougher political stances toward China by using its economic heft and launching a trade war. The northern Chinese port city of Dalian banned imports of Australian coal in February 2019. In 2020, China levied anti-dumping and anti-subsidy duties on Australian barley, launched anti-dumping and anti-subsidy probes on Australian wines, and halted beef imports from four of Australia’s largest meat processors (Reuters, December 10, 2020). Beijing has also sanctioned other Australian exports for obscure technical reasons. Chinese customs officers delayed imports of shellfish products from Western Australia over “inspection and quarantine measures.” Authorities banned imports of timber from the northeastern state of Queensland over the detection of “live pests such as longicorn and buprestid beetles” (Ministry of Foreign Affairs of the People’s Republic of China, November 2, 2020).  

Trade statistics show that Australia’s economy has mostly weathered the negative effects of the trade war, as Frydenberg pointed out in his address. Roland Rajah, an economist at the Sydney-based Lowy Institute, called China’s attempt at political and economic coercion a failure (The Australian, April 14). While trade of the Australian goods targeted by Chinese sanctions fell by $5.4 billion, exports of those same goods to the rest of the world increased by $4.4 billion, signaling a relatively modest $1 billion net loss. Australia’s coal exports to China over 2021 fell by around 30 million tons, but its coal exports to the rest of the world rose by 28 million tons (Department of the Treasury of Australia, September 6).

Not all Australian products have rebounded from the costs of Chinese sanctions. In November 2020, China imposed punishing tariffs of up to 212 percent on Australian wine, which crushed domestic distributors. At the time, Australian wine had 40 percent of the world’s import market “value in 2020. Now, it has just 6 percent (The Sydney Morning Herald, October 16). To make matters worse, competing winemakers from other countries have benefited at Australia’s expense: France’s global wine market share increased from 28 to 35 percent, and Chile’s share rose from 16 to 23 percent. China’s punitive tariffs have led some members of the Australian Parliament to push for protectionist policies such as increased domestic subsidies for manufacturers and a “Buy Australian Act” that favors local suppliers. Such policies are the only way to “fight fire with fire,” according to these politicians (National Party Manufacturing Paper, January 26). Despite these concerns over economic vulnerability to China, the governing center-right Liberal Party has said that Australia does not plan to abandon its commitment to free and open international trade.

Notwithstanding losses in some sectors, much of Australia’s economy has largely adjusted, and even thrived, by embracing new products and finding new export markets. A significant portion of Australia’s coal exports have been redirected to consumers in India, and exports are now higher than before China imposed sanctions. As West Australian barley farmer Graeme Robertson put it: “One door closes and another one opens.” After Beijing imposed a crippling 80 percent tariff on Australian barley, just 33,000 tons of barley were exported to China. Yet Saudi Arabia replaced China as the biggest market, importing 1.5 million tons of Australian barley (Australian Broadcasting Corporation, May 16). Other barley farmers switched from growing barley to canola. As a result, Australia is expected to harvest a record canola crop of more than 5 million tons in 2021, according to government data (South China Morning Post, October 15).

The current trade dispute violates prior economic agreements involving Australia and China. Both countries signed a bilateral free trade agreement in 2015 and recently ratified the Regional Comprehensive Economic Partnership (RCEP), which is arguably the world’s largest trade deal and includes 15 Asia-Pacific countries. In December 2020, Australia accused China of undermining their bilateral trade agreement with tariffs. Trade Minister Simon Birmingham said that officials in Beijing have denied repeated requests for meetings, further contravening the terms of the 2015 trade deal (BBC News, December 9, 2020). At the 2020 Caixin Summit in Beijing, Australian deputy trade secretary Christopher Langman said that RCEP should remind both countries to abide by international trading rules and “to engage with each other as equals” (South China Morning Post, November 16, 2020). Nevertheless, Chinese economic pressure on Australian exports is unlikely to abate anytime soon.

AUKUS Security Pact  

The AUKUS trilateral security pact between Australia, the United States, and the United Kingdom, which was announced in September, further roiled Sino-Australian relations. Under the agreement, the US and UK will share advanced nuclear submarine technology with Australia. The three countries will also share information about long-range strike capabilities, artificial intelligence, and underwater systems (The Sydney Morning Herald, September 16).

Some observers have hailed the pact as a strategic victory for Australia, but the move has not come without criticism. Chinese and some Western security experts have voiced concerns that the nuclear cooperation involved might inspire increased proliferation to non-nuclear states and incur scrutiny from the UN’s International Atomic Energy Agency (China Military, October 28). Regardless, the deal underscores that Canberra sides with Washington over Beijing, signaling a departure from its previously more ambiguous stance that sought to avoid choosing between both countries. To many observers, the deal also exemplified clumsy diplomacy. In order to join AUKUS, Canberra abruptly terminated a $90 billion deal with French submarine maker Naval Group, signed back in 2016, to build 12 diesel-electric submarines. French Foreign Minister Jean-Yves Le Drian described AUKUS as “a stab in the back.” President Emmanuel Macron recalled his ambassadors from Canberra, although he later reinstated them (Australian Financial Review, September 16). The move has effectively frozen progress toward an EU-Australian free trade agreement and significantly damaged Canberra’s standing in Europe.

The defense pact has divided the nation’s former prime ministers: While Tony Abbot, a member of the Liberal Party, supports it, Paul Keating of the center-left Labor Party opposes it. Malcolm Turnbull, a former Liberal prime minister who signed the now-axed French submarine deal, described the move as an “own goal” (Malcolm Turnbull, September 29; Foreign Policy, October 6). Regardless, current Liberal Prime Minister Scott Morrison remains steadfast in his support of the move, which he previously described as a “forever partnership” (The Sydney Morning Herald, September 25).

China has publicly blasted the agreement. Foreign Ministry Spokesperson Wang Wenbin described the pact as an “Anglo-Saxon clique” that “smacks of obsolete Cold War zero-sum mentality” (Ministry of Foreign Affairs of the People’s Republic of China, October 22). He also claimed that the deal to share nuclear submarine technology with Australia violates the “object and purpose” of the Nuclear Non-Proliferation Treaty. At the Beijing Xiangshan Forum in October, Chinese experts criticized the pact as seeking to confront “imaginary enemies” and reflecting Washington’s “unilateral and narrow-minded security outlook.” Others argued that the pact exemplified America’s longstanding use of “double standards” on nuclear non-proliferation, in which Washington prohibits states like Iran from developing such technology but willingly exports similar weapons to allies like Australia (China Military, October 28).

Public Opinion

Not all Australians support the shift to a strategy with greater focus on countering China. Former Prime Minister Paul Keating has criticized Australia for “its needless provocations against China” and “fawning compulsion to please America” (Australian Financial Review, September 3). Keating has long pushed for Australia to develop a more independent regional policy that does not overly rely on US assistance. Former Australian ambassador to China Geoff Raby has said that Australia should avoid raising every human rights issue with China and instead criticize “the ones that really matter.” (The Sydney Morning Herald, November 11, 2020) [1]. Penny Wong, a Labor senator, has previously urged the government to “stop focusing on splashy headlines” and instead focus on assisting the domestic exporters who depend on China for their jobs (Australian Broadcasting Corporation, December 5, 2020).

Surveys indicate that most Australians back the increasingly tough China stance adopted by Prime Minister Scott Morrison’s government. A poll from the Lowy Institute found that nearly two out of three Australians view Beijing as more of a security threat than an economic partner (South China Morning Post, June 23). 56 percent of Australians believe that “China is more to blame” than Australia for current bilateral tensions. In November 2020, a separate Lowy survey found that 82 percent of respondents expressed concern about China’s political influence in Australia (Lowy Institute, accessed November 12).

Most Australian politicians seem to be on the same page as well. Despite its somewhat more conciliatory rhetoric toward China, the opposition Labor Party has supported the Morrison government’s major policies, including the Huawei ban, the passage of laws aimed at combating foreign interference, and the call for an independent inquiry into the origins of the coronavirus in Wuhan. Members of Labor are mostly in “lockstep with the government,” explained Dave Sharma, an Australian politician and former ambassador to Israel (Financial Times, December 16, 2020).

Conclusion

“Our external environment has become more challenging,” Treasurer Josh Frydenberg said in his speech on Beijing’s trade war with Canberra. “And it is likely to remain that way for some time to come.” His remarks reflect the reality that China-Australia tensions are unlikely to improve anytime soon. The signing of the AUKUS security pact in September only affirms this.

At this point, it is too early to determine whether Beijing’s campaign of political and economic coercion against Australia has “failed.” So far, at least, it has not succeeded in pushing Canberra toward a more pliant and accommodating approach to China. While some Australian industries have suffered under China’s trade sanctions, most have successfully navigated the uncertain waters by diversifying export markets and products. With AUKUS, Canberra has secured access to top-secret nuclear submarine technology from the world’s most powerful military. Beijing struck Canberra with a fusillade of tariffs to coerce it into adopting more pro-China political viewpoints, but the Morrison government has not budged. China significantly trails in the battle for the hearts and minds of Australia’s citizens, and domestic public support for Canberra’s outspoken anti-China posture has only increased.

For now, Australia’s government and domestic industries have stood firm and weathered China’s attacks. Only time will tell what happens next.

William Yuen Yee is a Research Assistant for the Columbia-Harvard China and the World Program. He has previously written for the Center for Strategic and International Studies, SupChina, the China Story, and the SOAS China Institute.

Notes

[1] Raby runs a business advisory firm in Beijing and sits on the board of the coal producer Yancoal, which is majority owned by a state-backed Chinese company.