Actually, China can’t put Australia over an economic barrel

Contrary to widespread commentary, Australia’s trade exposure to China doesn’t put Beijing in a position to apply powerful economic coercion on this country.

To understand why, we first need to recognise that in cases of economic coercion the aggressor starts from a disadvantaged position. After all, cutting off economic exchanges also hurts it, and the target isn’t inclined to fold because the change being pressed is not in its interests.

The aggressor must have a tolerance for self-harm.

It must also have either an ability to impose large-scale costs or, alternatively, to concentrate costs on vulnerable and politically powerful interest groups. In the case of Australia, empirical evidence suggests that China cannot take either approach. Unawareness of this is resulting in misinformed policy advocacy, including in The Strategist.

The campaign of economic coercion that Beijing unleashed on Australia in 2020 was unprecedented in its proportions. Before that, in 2010, Norway had lost access to the Chinese market for its salmon. Ditto, the Philippines and its bananas a few years later. But the campaign targeting Australia encompassed a dozen categories of goods, worth a combined $20 billion.

Yet peer-reviewed research has shown that the overall value of two-way trade between Australia and China has continued to hit new highs.

Historically high commodity prices were certainly fortuitous. But most of Australia’s big-ticket export items—such as iron ore, liquefied natural gas and lithium—were left untouched, because China relied on Australia as a supplier as much as Australia relied on China as a market. Beijing also didn’t disrupt Australian supply chains, which would have harmed the profitability of Chinese businesses and the jobs they provided to local workers.

Research has also shown that most Australian businesses hit with disruption were readily able to mitigate the costs. One reason was simply that if Chinese importers no longer wanted Australian coal or barley, plenty of buyers in other countries did.

The confidence offered by access to open and competitive global markets works on the supply side of Australia’s economy, too. A recent study by the Productivity Commission on the resilience of local supply chains concluded that ‘only a few traded products are vulnerable.’ In those cases, there’s no argument that serious attention needs to be given to how policy levers might be used to address the threat.

To be sure, some research also argues that Beijing applied ‘significant and concentrated subnational costs’ and this led to ‘political pressure … influencing the provision of concessions’ favourable to China’s interests.

No doubt there were instances of businesses in hard-hit sectors and regions, such as winemakers in South Australia or lobster fishers in Western Australia, urging Canberra to deliver them relief by changing its policies on China.

But the overall tone of business advocacy was clear in the public messaging of peak bodies: that the government should not bend to China’s pressure. China’s trade tactics were hardly succeeding in mobilising influential interest groups in its favour.

In late 2020, David Olsson, president of the Australia-China Business Council, put on the record that there was a ‘broad business acceptance that the government is doing the right thing in not buckling to pressure’.

In 2021, Innes Willox, chief executive of the Australian Industry Group, urged the government and businesses to ‘pull every lever to overcome the obstacles China has chosen to put in our way’. While businesses would miss the Chinese market, ‘we won’t miss the abuse, our lobsters being left to die at their airports … their petty bureaucracy, their authoritarianism and their determination to punish”.

In 2022, Warwick Smith, representing the Business Council of Australia, was similarly blunt, saying that ‘The overreach by China on their economic sanctions was ridiculous. It hasn’t worked; we stood our ground and embraced our values”.

As veteran journalist Paul Malone also reminds us, fears of businesses (or any other Australian individuals or groups) lobbying local parliamentarians or ministers miss the point that ‘In a democracy we’re all entitled to try to influence each other in private and public discussions’.

This includes what’s been called a ‘securitising coalition’ that agitated for Malcolm Turnbull’s and Scott Morrison’s governments to adopt a new, tougher line on China beginning in 2016.

Covert acts of foreign interference in Australia’s political system are, of course, unacceptable. This is why, at the end of 2018, intelligence and policing agencies were handed the laws and resources they had sought to expose and prosecute such acts.

Whatever was happening at an elite level, another consequence of Beijing’s economic coercion was a collapse in Australian public opinion.

Put all that together and the real political risk for prime minister Scott Morrison’s government and then Anthony Albanese’s government was bowing to Beijing’s pressure. Indeed, as recently as late 2024, there was a recognition from the Peter Dutton-led opposition that ‘the Albanese government hasn’t, in substance … changed the policy positions that the Coalition put in place’.

Certainly, there were some complaints from businesses and others in Australia, including academics and former politicians and government officials, about the Morrison government’s handling of diplomacy with China. But it is bad faith to contend these amounted to lobbying Canberra to appease Beijing by changing its foreign policy positions.