On March 30th 2021, the World Health Organization announced the results of an investigation
into the origins of Covid-19 after a field visit to Wuhan, China.
They were inconclusive.
The 34-strong investigative team declared it was most likely that the virus was transmitted
from animals to humans, while the theory that it leaked from a laboratory was deemed “extremely unlikely.”
The results prompted 14 nations, including Australia, to call for further investigations.
Following this response, China, which has been Australia’s largest trading partner
for over a decade, placed an unprecedented number of tariffs and restrictions on several
of the nation’s goods.
China then retaliated further, ‘indefinitely’ suspending economic dialogue, a sign of the
escalating tensions between both countries.
For many people watching, one of the questions they will have is:
"There are so many trade wars, why should we care about this one?"
The thing that you should really be thinking is, what if
my sovereignty decides that I have to make a particular decision and then
China institutes similar trade actions against me?
So, what does this clash mean for Australia, China and the future of global trade?
Before China began to open its economy in 1978, the Asian country was largely rural,
and its goods formed less than 1% of world trade.
Hello, Will.
Hi, Timothyna.
Haw are you?
I'm very well, thank you.
Will Koulouris is based in Sydney, where he covers Australia and New Zealand for CNBC.
When did the close relations between Australia and China start?
Gough Whitlam, one of our former Prime Ministers back in the 70s,
started engaging with China before Nixon went there.
The Australian leader’s visit to China was a milestone in Australia-China relations,
and is credited with the rapid expansion of trade between the two countries, as well as
prompting other Western countries to follow suit.
China and Australia, from then on, maintained a strong relationship in terms of
the trading relationship; it wasn't anything like it is now.
Australia benefited from China’s opening to foreign trade.
Just look at this graph.
The country’s share of Australia’s exported goods rose steadily in the 1970s and exponentially
by the 21st century.
By 2009, China’s total imports from Australia were worth more than $33 billion, overtaking
Japan to become the largest importer of Australian goods.
China has been Australia’s largest trading partner ever since and accounts for more than
26% of the country’s trade.
China’s insatiable demand for Australia’s natural resources was one of the main reasons
why it had a 29-year run without a single recession.
In fact, Australia was the only major economy to avoid a recession during the global financial
crisis in 2008.
Australia’s higher education system is also heavily reliant on fees from Chinese students.
They account for about 40% of international students in the country, of which 160,000
are enrolled in their universities.
China and Australia need each other.
There's always something that China could do if they really wanted to.
For example, with iron ore, they could, mine the 20 billion tons of iron ore that they've
got in China. That are just reserves in the ground.
It's lower grade, it's going to cause more emissions when you're trying to use it to
make steel. But if they really wanted to, they could.
But it would cost them and the economic costs would outweigh any kind of political advantage
that you're going to get by not having that relationship.
Those ties deepened in 2014 after the signing of a major free trade agreement.
It meant that 95% of major Australian goods including coal, barley, wine and beef could
enter the country tariff-free.
Everybody was on a high here in Australia.
When it came to the Australia-China partnership, there was all of these promises of the future
riches that Australia was going to garner by this increased cooperation and strategic
economic partnership with China because we had just signed the free trade agreement.
Thanks to that deal, Australia enjoyed a unique position that many countries would crave:
a trade surplus with China.
That year, the country exported goods worth more than $80 billion to China while importing
nearly $47 billion, or a trade surplus of nearly $35 billion.
There was always that strong relationship, and it was just all of this political mess
that's happened in the past three years, that's put a dampener on the current relationship.
But then, signs of a fraying relationship and differing values began to emerge.
China claimed Australia had been discriminating against Huawei, by blocking its participation
in the country’s 5G network in 2018.
Australia was the first country to ban Huawei, concerned that the Chinese tech giant would
divulge data to the government.
Huawei has repeatedly denied these claims.
There were a lot of little other things that
were happening on the edges at the same time, in terms of foreign investments being denied.
There were a number of big investment opportunities that Australia had turned down on the basis
of the foreign ownership laws here in Australia.
And that was before Huawei.
It's a catalyst, but it's not necessarily the only event that was happening at the same time.
The rift escalated when Australia joined other countries to demand further investigations
into the origins of the coronavirus.
What China was contending is that Australia would have given them a little bit of a heads up,
told them this is what we're planning to say.
And then obviously, China is going to be prepared for the media frenzy that's going to result from this.
China responded by placing tariffs and restrictions on Australia’s major exports including seafood,
beef, wine, coal and barley.
These targeted exports were worth $25 billion in 2019, or 1.3% of Australia’s GDP.
Still, the Australian government stood by its decision and even cancelled two deals
under China’s Belt and Road Initiative.
China then hit back, accusing the government of having a ‘Cold War’ mindset, announcing
it would no longer engage in economic dialogue in May 2021.
So, when it comes to the official line, or the view of the Australian Government, what
they're saying is, we just want to get our Chinese counterparts on the phone, we want
to be able to have these frank discussions with them
and talk through the issues we are currently facing.
China isn't doing that. And they haven't done that for over a year now.
They won't discuss anything other than on the diplomatic level, so ambassador to ambassador.
Many of the targeted industries have been affected.
Since late 2020, the total value of Australian exports to China dropped by more than $10 billion.
As the economic pressure began to sink in, many Australian farmers pleaded with their
government to restore trade ties with China.
It was a wakeup call for Australian exporters to diversify, and many managed to blunt the
impact of China’s trade pressure by opening new markets in the latter part of 2020.
Coal exports to the rest of the world, for example, were $9.5 billion higher than before
the ban, helped by offsets from new markets, notably India.
Even though the annualized value of Australian exports to China fell by $10 billion since
late 2020, overall, the annualized value of these goods to other markets rose by $14 billion.
So, Will what's next?
A lot of the tensions we’re having with China plays well in the domestic front.
The path the government is on right now is to strengthen Australia’s national sovereignty.
It’s going to be a continual policy stance that's more in tune with the other Western nations.
Perhaps what’s next for China is a softening.
We saw a couple of weeks ago Xi Jinping say he wants to soften China’s stance when it comes to the rest of the world.
If enough of the other countries are going: 'Hey, wait a minute, we don't like where this is going,
because Australia may be one example but what if we’re next?'
Australia is also counting on the World Trade Organization to act as a mediator, and to
calm the tensions that have brewed for more than five years.
But with both governments unlikely to back down soon, the trade war seems set to continue.
I gotta snap that, that was deep.