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Trading Places: Australia-China Relations

It is certainly a special combination of insensitivity and expediency that led Peter Dutton, Australia's Minister of Defence, to suggest that a military conflict with China over Taiwan should not be discounted. The comments were coupled with Home Affairs Department Secretary Mike Pezzullo remarked that we could hear the beating drums of war in the region. This all comes on the back with a continuing trade war between Australia and China.

The comments are insensitive, not only because they contradict to the long-standing policy of Australia to China, which recognises that Taiwan is part of China. For what it's worth, this is also in the constitution of Taiwan; both the governments of Beijing and Taipei consider themselves the legitimate government of China, and that the other side is rebellious. But the insensitivity is not just in the field of international relations, but also the fact that the comments were made during the ANZAC Day holiday, held in commemoration of Australians (and New Zealanders) who served and died in war.

Most Australians, recognising that all war is hell, and doubly that Australia usually gets sent to war at the behest of the demands of our ruling class (the peace-keeping mission as part of INTERFET being a very notable exception), ANZAC Day is considered a day of memorial, despite the expedient jingoism of politicians who wish to enculture an aggressive nationalism. Governing politicians love the prospect of war of course, especially because others are going to do the fighting whilst generating a "rally around the flag effect" is an empirical reality; the politicians retain power and whilst soldiers and civilians are threatened with death. As veteran diplomat Bruce Haigh has pointed out, "China does not, and will not, go to war over Taiwan... The only way war will occur is if the U.S. engineers it as they 'justified' war with North Vietnam by engineering the Gulf of Tonkin incident"

The political insensitivity and expediency aside there is also the old adage, "a trade war leads to a shooting war". It is damage in trading relations between China and Australia that is explored here. For it is such a basic principle of economics that mutual exchange benefits both parties that the circumstances that where this is not the case the term "deadweight loss" due to the lack of trade is used (of course, where there are large negative externalities, a deadweight loss is justified and ought to be encouraged). Given that Australia and China's trading relationship has been damaged, it is worth considering what this is costing both countries in the hope that both a continuing trading war and a potential military conflict can be avoided and the relationship improved.

The facts need to be stated; China is Australia's top destination in exports, both in merchandise (39.6% of total share) and in services (17.6%). The major exports are iron ore ($84.6b AUD), natural gas ($15.77b), coal ($13.71b), and education ($10.49b), a total export trade worth some $167.746bn AUD, making Australia the fifth largest import source for China (one may note that Taiwan is the second). In the other direction, China's exports to Australia total 81.29b AUD, mainly telecommunications equipment, computers, furnishings, and refined petroleum. For both countries, disruption to this trade means that both sides lose.

A list of China's trade actions against Australia (and vice-versa) are readily available, even with day-by-day accounts. Most notably a coal ban, then an 80% tariff on barley, claiming that the product has been imported against trade rules, specifically against dumping and subsidies, the blacklisting of 35% of beef sales, and shortly afterwards, wine sales, and more. According to importers, they'd be been warned by custom officials not to buy Australian sugar, barley, red wine, timber, coal, lobster, and copper.

China has argued that the restrictions are in line with regulations and not due to a souring of relations between the two countries. This is considered dubious, as there is a strong correlation between a country falling out of favour and having a surprise regulatory imposition. When Norway awarded a Nobel Peace Prize to Chinese dissident Liu Xiaobo, surprise import controls were placed on Norwegian salmon. When Canada arrested a Huawei executive there were sudden blocks on Canadian shipments into China of agricultural produce. When South Korea began installing a US missile defense system, suddenly one of its major supermarket chains was shut down over safety violations. The spurious use of a regulatory framework provides a plausible cover, but the net result is informal retaliation - and sometimes these boundaries of diplomacy are overstepped.

To a large extent, Australian exporters have worked around the various regulatory bans and investigations. Barley sales were largely redirected to Saudi Arabia, and cotton exports turned to Indonesia, Thailand, and Vietnam. Coal recovered with exports reaching record levels a few months later. Not all industries could recover to the same extent of course; the lobster industry, in particular, has not found alternative markets, and it is impossible to expect domestic to make up for the shortfall. Still, to the degree that the PRC may have wished to influence Australia's foreign affairs policy through their trade policy, it has hardly been an overwhelming success, and the governing parties are actively encouraging the search for alternative trading partners.

In all cases, the bellicose attitudes by Australian (and other) politicians is less than helpful and tend to reflect partisan interests. There are third parties and international laws to help resolve disputes. Encouraging the spirit of international cooperation and compromise is necessary in both politics and trade, and is certainly preferred prior to taking the legal route. Politicians who advocate confrontation are certainly not helping the situation. If trade wars run the risk of becoming shooting wars, the inverse is also true. Trade agreements, built on mutual trust, transparency, and commitment, build the bridges towards mutual understanding and lasting peace. After almost two years of destructive political expediency, it is about time that both sides sought rapprochement with some political maturity.

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