Australia is badly exposed to the rising trend of “coercive trade warfare”, with both China and the US using economic levers to pursue their great power rivalry, a leading analyst says.
After China targeted a range of Australian export sectors as the relationship soured last year, and given the Trump administration also pursued “coercive” trade practices, a new report calls on the Australian government to adapt its policies and add to its “geoeconomic toolkit”.
Dr Jeffrey Wilson, the research director at the Perth USAsia Centre at the University of Western Australia, said while the tensions between China and Australia had brought the issue to a head, “this is a global economic fight that has been brewing for a decade”.
“The China-Australia events have brought home to us that this is something that Australia is increasingly going to face: economic coercion by larger powers that will hurt our economy and hurt society,” he said in an interview.
Wilson’s report, to be launched at the Australian National University’s national security college on Tuesday evening, argues the government needs to become much more willing to litigate trade disputes, both through the World Trade Organization processes and through mechanisms in Australia’s 15 free trade agreements.
“In an Australia-China fight we lose, in an Australia-US fight we lose – but a WTO panel ruling against China is one we can win,” Wilson said.
The report also suggests that “in cases where these mechanisms fail”, the government should offer support to affected industries. That is on the basis that those sectors have been “affected by political actions that fall outside normal business risks”.
Wilson said that if the China tensions were not a one-off, “Australia has to think about how we distribute the costs of that”.
He said barley growers, lobster farmers and coalminers – which had all been targeted by Chinese trade actions over the past year – were “effectively paying the price for the country”.
“We give drought relief to farmers who are affected by drought, could we give trade sanctions relief to those who are affected by trade sanctions?”
The report describes geoeconomics – using economic instruments for geopolitical ends – as “a fact of life in the 21st century Indo-Pacific”.
It says many governments, particularly China and the US, have deployed geoeconomic strategies “to manipulate economic relationships for geopolitical gain” and to prosecute great power rivalry.
The report argues that this trend poses a historic challenge for Australian diplomacy, because for three decades Australia has “benefited immensely from a cooperative, rules-based and liberalising economic order in the Indo-Pacific”.
Given that Australia’s economy is open and medium-sized, it is highly exposed to external shocks to its trade and investment ties, the report says. Australia’s liberal approach to trade now leaves “Australia exposed to risks emanating from the geoeconomic strategies of others”.
Another reason for Australia’s vulnerability is that its trade relationships are “deep but narrow”, with minerals resources making up over half of Australian exports.
The report highlights that just three commodities – coal, iron ore and natural gas – account for the lion’s share. Geographically, the Indo-Pacific region accounts for 84% of Australia’s goods exports, including 35% to China and 17% to Japan.
The report doesn’t call for wholesale abandonment of open trading principles, but urges Australia to consider new approaches to manage emerging risks.
“Australia now needs to strike a new and careful balance between the openness that secures Australia’s economic strength, and strategic considerations that protect against security risks and political coercion.”
The report calls on Australia to diversify its trade and investment relationships as its “top foreign economic policy priority”.
This should involve building stronger ties with “hitherto under-realised partners” such as India, Indonesia and Vietnam, rather than engaging less with existing partners such as China, the US or Europe – because that sort of disengagement “would simply make Australia poorer”.
The report also calls for Australia to use geoeconomic tools more proactively, citing the Pacific Step Up as a move in the right direction, given it “recognises the more prominent role strategic considerations will need to play in the aid program”.
Other recommendations are for Australia to build coalitions with smaller groups of likeminded counterparts to advance economic cooperation, while at home seeking input from state governments and industry to better coordinate foreign economic policymaking.
Wilson said Australia had suffered collateral damage from the Trump administration’s approach to trade. Under Trump, the US “deployed coercive trade diplomacy against many major economies”, renegotiated trade agreements under threat of tariff impositions, and vetoed nominations to a key WTO body.
“[Joe] Biden is going to be better than Trump, unquestionably, but it’s not what we have been used to for the last 30 years: a free-trading America that used its power to lever open global markets that Australia could benefit from having trading relationships with.”
A separate policy brief published by the Lowy Institute on Tuesday also outlines a blueprint for how Australia should pursue concerns about China’s interest in resource exploration in the Antarctic.
Claire Young, a former senior analyst with Australia’s Office of National Intelligence covering Antarctica, writes that China “wants to benefit economically, and potentially militarily, from Antarctica”.
Young’s policy brief says China is increasingly assertive in the Antarctic Treaty System (ATS), primarily over fisheries access, and is active on the ice.
She says Australia should step up its support for the ATS, which “provides Australia with a peaceful, non-militarised south; a freeze on challenges to our territorial claim; a ban on mining; and an ecosystem-based management of fisheries”.
Young argues Canberra “should monitor Chinese activities” in the region and step up its maritime awareness of the Southern Ocean, “but refrain from geostrategic panic”.