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Diversification is strength: Australia’s trade war with China


Jeremy Mann

By

May 28th, 2020


The global pandemic will cause repercussions beyond the policies implemented, join Jeremy as he analyses the Australia-China trade agreement.


Threats have been made by the Chinese government in the recent weeks, hinting at the potential for a trade war to erupt between Australia and the world’s second-largest economy. As tensions reach a boiling point over calls for an independent global inquiry into the origins of COVID-19, Beijing has toyed with the idea that Australian-produced goods may face tighter import controls such as tariffs if political pressure doesn’t subside in the near future.[i]

Already, Chinese officials have dealt a significant blow to Australia’s primary industries, with the imposition of an 80 per cent tariff on barley.[ii] These revelations could not have come at a worse time, given that Australian producers are already dealing with difficult circumstances due to the ongoing pandemic with an estimated $34.2 billion impact on gross domestic product.[iii] Likewise, Australian universities have grown accustomed to a strong dependence on Chinese international students, with over $3 billion in revenue predicted to be lost in 2020 alone.[iv]

Given the volatility of the situation and the drastic effect that such measures would have on our economy, thus the time has come for Australia to consider diversifying whom we trade with, and on what terms. Currently, our reliance on China for export demand and foreign investment poses a formidable risk to many vital sectors within the Australian economy. With escalating trade tensions and uncertainty, the concentration of Australia’s main exports into: natural resources, agriculture and education; needs to be expanded across a diverse range of trade partners.

At the beginning of 2020, the Federal Parliament’s ‘Inquiry into Diversifying Australia’s Trade and Investment Profile’ was established to investigate economic vulnerabilities and risk mitigation factors regarding Australia’s trade portfolio. Committee Chair George Christensen MP outlined that this process would determine whether Australia is too heavily dependent on foreign investment and single markets for exports.[v] Additionally, the Australian Government has already made announcements limiting foreign investment in order to prevent Chinese-owned firms from taking advantage of struggling companies in the wake of COVID-19.[vi]

However, as Australians businesses and consumers alike become increasingly concerned about a future where China’s control over our economy deepens, Victorian Premier Daniel Andrews has faced considerable backlash over his decision to sign up to the controversial Belt and Road Initiative.[vii] This puts into question whether a lack of political transparency surrounding this secret agreement is likely to have a detrimental impact on farmers and other regional producers.

Considering that a trade war between the US and China has been unfolding for quite some time, it is not unsurprising that Australia is now being confronted with similar rhetoric on the basis of political meandering and propaganda. These new revelations over the future of the Sino-Australian economic relationship are set amongst growing opposition against China’s human rights abuses against the ethnic Uyghur population, as well as the disintegration of democracy in Hong Kong.

As such, provocative comments made by China’s ambassador, Cheng Jingye, labelling Australia’s calls for an independent coronavirus inquiry as “nothing but a joke” are likely to cause a further strain on our trade relations by questioning our political integrity and attacking our national pride.[viii] Alternatively, Australia should be looking to expand its horizons and explore opportunities to trade with developing economies such as India, further cementing our long-term economic interests. Already, Prime Minister Scott Morrison has agreed to develop strategic supply chains with India in areas such as medical goods, agriculture and technology.

These negotiations go as far as providing security for our export industries in the short-term, but more measures need to be instituted to protect Australian businesses from the dominant Chinese economy. China has previously been accused of price-dumping on steel imports into Australia, as well as purposefully discriminating against Australian firms operating within its borders faced with unfair competition.[ix]

Beijing’s clear narrative on how it wants to interact with our markets reinforces the idea that ‘not all free trade is fair trade,’ signalling that a reduction in protectionist measures in some industries can lead to undesirable consequences. Now is the perfect time for Australia to break free from its chains by decreasing our reliance on Chinese demand and instead begin the process of diversifying our trading partners.


[i] Hutchens, G 2020, China will have to be mindful of which Australian exports they target next if they don’t want to hurt their own interests, viewed 24th May 2020, <https://www.abc.net.au/news/2020-05-23/china-considers-escalating-trade-war-coronavirus-covid19-inquiry/12278672>.

[ii] Borello, E 2020, Coronavirus inquiry tensions leave WA farmers fearing more China tariffs after barley hit, viewed 24th May 2020, <https://www.abc.net.au/news/2020-05-22/coronavirus-tensions-leave-farmers-fearing-more-china-tariffs/12274044>.

[iii] Thorpe, J, Loughridge, J & Picton, M 2020, The possible economic consequences of a novel coronavirus (COVID-19) pandemic, PricewaterhouseCoopers, Australia, viewed 24th May 2020, <https://www.pwc.com.au/publications/australia-matters/economic-consequences-coronavirus-COVID-19-pandemic.pdf>.

[iv] Horne, J 2020, How universities came to rely on international students, viewed 24th May 2020, <https://theconversation.com/how-universities-came-to-rely-on-international-students-138796>.

[v] Parliament of Australia 2020, Inquiry commences: diversifying Australia’s trade and investment profile, viewed 24th May 2020, <https://www.aph.gov.au/About_Parliament/House_of_Representatives/About_the_House_News/Media_Releases/Inquiry_Commences_Diversifying_Australias_Trade_and_Investment_Profile>.

[vi] Remeikis, A 2020, Australian authorities to check every proposed foreign investment during coronavirus crisis, viewed 24th May 2020, <https://www.theguardian.com/world/2020/mar/29/australian-authorities-to-check-every-proposed-foreign-investment-during-coronavirus-crisis>.

[vii] Rooney, K, Minear, T & White, A 2020, Andrews government’s ‘cosy’ Belt and Road deal slammed by state opposition, viewed 24th May 2020, <https://www.heraldsun.com.au/news/victoria/victorian-government-urged-to-rethink-belt-and-road-initiative-amid-souring-china-relations/news-story/5c3aae0527d2107a454529b793499382>.

[viii] Hurst, D 2020, Australia hits back at ‘provocative’ and ‘cheap’ Chinese embassy comments on Covid-19 inquiry, viewed 24th May 2020, <https://www.theguardian.com/australia-news/2020/may/19/chinese-embassy-says-australian-claims-of-vindication-on-coronavirus-investigation-are-a-joke>.

[ix] Zhou, W 2018, Barley is not a random choice – here’s the real reason China is taking on Australia over dumping, viewed 24th May 2020, <https://theconversation.com/barley-is-not-a-random-choice-heres-the-real-reason-china-is-taking-on-australia-over-dumping-107271>.

The views expressed within this article are those of the author and do not represent the views of the ESSA Committee or the Society's sponsors. Use of any content from this article should clearly attribute the work to the author and not to ESSA or its sponsors.

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