China's failed economic retaliation against Australia 

Kim Kisoo 

Senior Research Fellow, 

The Sejong Institute 

(kskim@sejong.org) 

Perhaps no other country is more dependent on exports to China than Australia. About 40% of Australia's exports in 2020 went to China. Twenty years ago, in 2000, the ratio was only 5%. But such close economic ties began to crack a few years ago. Last year, China began to retaliate recklessly against Australia. Considering Australia's dependence on trade with China, it seems only a matter of time before Australia succumbs, but the recent findings have been surprising. China has proved to have failed.

The rift in bilateral relations and China's visible external expansion are almost in line with the timing. China has imposed its own Chineseism on neighboring countries, especially those that are heavily dependent on China, and has not hesitated to retaliate against those who refused to do so. Canada, Norway, Taiwan, the Philippines, and Japan were retaliated. South Korea was retaliated in terms of tourism and distribution industry, Japan was retaliated in terms of rare earth exports, Norway was retaliated in terms of salmon imports, and Taiwan was retaliated in terms of pineapple imports. These cases were partial friction, but there was a head-on collision for Australia.

Australian Prime Minister Malcolm Turnbull's statement in 2017 that China's influence was worrisome was the starting point of the China-Australia conflict. In other words, concerns about China's expansionism were visualized. Australia participated in the Trump administration's call for sanctions against Chinese companies Huawei in 2018. Finally, in April 2020, Australia's new prime minister Scott Morrison touched on China's most painful part by calling for an international investigation into the origin and transmission mechanism of the coronavirus in Wuhan, China. China, of course, was furious and retaliated against Australia at the level of an all-out war.

In May 2020, four Australian meat processing companies revoked their licenses to export to China, and Australia imposed import restrictions or bans on items with a share of more than 20%, including barley, wine, cotton, wood, coal, lobster and copper. In particular, the ban on Australian coal imports announced in October 2020 was the strongest measure. Before the ban, Australia exported about 42 million tons of coal, or about 50 percent of China's electricity generation imports. Compared to China's 3.8 billion tons of coal production as of 2019, 230 million tons of imports may not seem huge. From Australia's point of view, however, this is a different story. This is because exports to China account for about 22% of Australia's total coal exports.

The damage to the Australian coal industry seemed inevitable according to figures. However, the situation turned out to be completely different. Most of the damage caused by the ban on exports to China has been overcome by the increase in exports to Korea, Japan, and India. After banning Australian coal imports, China changed its import ships to Russia and Indonesia. If coal exports to Russia and Indonesia, including Korea, Japan, and India, decreased, then these countries had to increase imports of coal from Australia. Other Australian industries, which have been subject to China's restrictions, have adopted the same strategy. Wheat is exported to Saudi Arabia and Southeast Asia, copper to Europe and Japan, and cotton to Bangladesh and Vietnam.

This is the principle of the international market. In an international market of interdependence, one inclination induces another's disinclination. China was unaware of such market principles. The Australian authorities recently announced the results of trade friction between the two countries over the past year. Exports to China decreased by $4 billion a year, but exports to other countries increased by $3.3 billion. The difference, or $700 million, is only 0.25% of Australia's annual exports. There is no restriction on imports of Australian iron ore, which is the largest and most difficult to replace in export items to China. Interestingly, Australia's exports of iron ore to China have increased by 10%over the past year, especially due to rising iron ore prices.

China's economic disputes against Australia, South Korea, Japan, Norway, and other countries show the following important facts. It is clear that China can weaponize its economy to pursue its hegemony at any time. All countries that trade with China must bear this in mind. China's next economic retaliation is also surprisingly likely to face a strong market backlash: market retaliation. This is an international reality that China must understand. It is not unreasonable to say that China's retaliation against Australia has failed.

※ This is an unofficial  translation  by Jisoo Kim jk1577@georgetown.edu​ ​of the original paper which was written in Korean. All references should be made to the original paper. 

※ This article is written based on the author’s personal opinions and does not reflect the views of the Sejong Institute. ​