China vs Australia: The Beginning of a New Cold War?
A trade war has been brewing between China and Australia for years as the countries' differences of opinion on freedom and human rights has affected their trade relationship.
In the recent decades, economic relations between China and Australia have been rapidly improved, which resulted in a free trade agreement between the two countries in 2015. China became Australia’s largest trade partner, accounting for 240 billion Australian dollars in 2019, according to the BBC. The sale of coal, iron ore, barley and wine to China was a lucrative concept for both sides, although the high reliance on China started to make some Australian politicians anxious. Also, the growing Chinese influence in education, media and different investments was considered as a drawback for Australia in the relationship.
In the last few years Australia’s main plan became to decrease the dependence on China, find new trade partners and strengthen the economic relations with other countries like India, the US and the EU. During this economic change, many conflicts have appeared with China, causing the total deterioration of economic and political relations.
The first problem was in 2018, when Australia became the first country to ban the 5G system of Huawei telecommunications company citing security concerns. The next step was to announce a law in order to control foreign investments in the area of agriculture and electricity, because of the fear of the rising Chinese influence in these sectors. In May 2020, Australian Prime Minister Scott Morrison ordered an independent investigation about the outbreak of the Covid-19.
China answered by banning Australian beef from its market. Besides beef, a lot of other products’ import have been suspended or made impossible to sell in China. Barley from Australia taxed with an 80% tariff, because China considered the sale of this barley as dumping, or selling products at a too low price, a practice that is normally forbidden. This move strongly effected the Australian barley producers, as half of their production was exported to China at an advantageous price, but now is an impossibility to continue these favorable market activities.
Also, the changes in the world’s coal industry changing are playing an important role in the Sino-Australian trade war. China completely stopped importing coal from Australia, which constrained both countries to radical changes. Australia had to diversify its selling, and surprisingly they were successful by enhancing the coal exporting to India and Brazil. However, the coal industry in Australia is not so popular with the Australian people, being a cause of air-pollution and being in the hand of foreign investors. As for China, the missing import of coal had little effect on the industry because of the increased coal mining capacity in China, and the total economic change to renewable resources. Although the suspension of the coal-trade between the two countries, worth 14bn A$ yearly, did not push them back together.
The most recent happening is the wine dispute, which has been taken to the WTO (World Trade Organization). China was the top market for Australian wines, but last year China announced a 218% tariff on Australian wines. Taking the problem to the WTO would allow to start dialogue between the two sides, in order to solve it. The trade with China is vital for Australian winemakers, placing them in a difficult situation without the Chinese market to rely on.
Overall, it is clear that Australia is too small of a country to win the trade war against China. This has also been realized also by the Australian government and that is why they are improving their economic and political relations with South Asia, Europe and the US. That was one of the main topics of the last G7 negotiation, where they agreed to control China and make an alternative to the Chinese Belt and Road Initiative.
As we can see through the steps of Australia and China, a solution in the short term is impossible. This trade spat is a smaller part of the larger disagreement of China and the US (and the Western democracies), and it is clear now, that Australia is a strong supporter of the US. No one can predict now how and when it will end, but producers on both sides hope that it will remain only a peaceful trade war.