Geostrategic Tensions Manifesting as Trade Conflict: Policy Recommendations for rebuilding Australia-China relations

EXECUTIVE SUMMARY¹

There had been an expectation, or hope, in some Australian government circles that Australia-China relations might have been patched up to some degree during the northern winter of 2020-21 when China started to shoulder some of the costs of deteriorating relations with Australia, most notably in coal.

Energy shortages and sharply rising coal prices on domestic markets forced China to scramble for supplies around the world, paying premium prices for non-premium product. This shock did not become the precursor to a thaw in the relationship because bilateral strains have become deeper than trade: maintaining the ban on Australian coal proved to be more important politically than the economic cost to China. Strains in the Australia-China political and strategic relationship have been building for several years.

China has increased both its ambitions to shape how the world and region works, and its power to pursue those ambitions, in ways that do not reconcile easily with Australia’s approach to engagement with the region. Australia also has contributed to deteriorating bilateral relations by paying insufficient attention to how our policies and initiatives might be perceived by China. And the overall security environment has changed in major ways. China believes that its time has come. The United States has moved from a broadly cooperative approach to China to a more adversarial one marked by widening areas of strategic competition.² And this souring environment has, in turn, impacted Australia-China relations. 

But just because there is little chance of getting back to the relationship that Australia and China enjoyed just four or five years ago should not mean that Australia settles for a relationship with China that is burdened by distrust. Nor should it mean that the present state of Australia-China relations should prevent a revival of mutually beneficial and broad-based trade and investment relations with China. Trade can be a vehicle to advance relationships, including, and perhaps especially, between  Australia and China where the mutual benefits on offer are so great.

This need not be at the cost of security and broader strategic interests and could in fact enhance them, irrespective of cultural, political and historical differences. Building and maintaining the bridges that facilitate trade requires respect and commitment to rebuilding trust. These are scarce commodities that could be harnessed in managing wider tensions in the relationship and contribute both to better economic outcomes and a more predictable security environment.

This policy brief next reviews the present state of Australia-China relations and then attempts to answer three questions: what can be done domestically to repair relations? What can be done jointly with our partners around the world? And what options might exist – even unpalatable ones currently – to edge towards a workable settlement?

Background

The present state of play in the Australia-China relationship

The ‘ocean of good will’ between Australia and China³ has well and truly evaporated and has been supplanted by inappropriate language, including on the ‘drums of war’ and Chinese insinuations that Australia is racist and guilty of war crimes. Relations are now probably at their lowest point since diplomatic relations were established, and Australia is learning at first hand that it can be both uncomfortable and unproductive for middle powers to get too far out in front on issues that are central to superpower competition.

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1.     The views expressed here are the authors’ alone, and do not express the views of the Institute for International Trade.
2.     T Christensen 2021, ‘There Will Not Be a New Cold War: The Limits of U.S.-Chinese Competition’, Foreign Affairs, 24 March.
3.     Xi Jinping, Address by the President of the People’s Republic of China, Parliament House, Canberra, 17 November 2014.