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'China makes more noise': What the EU can learn from Australia's relationship with China

It may be that the hype around Chinese trade and the Communist Party’s fearsome reputation can exaggerate fears about the consequences of offending its leadership, writes CJ McKinney.

As part of The Good Information Project we are looking at the relationship between Chia and Ireland. Here, CJ McKinney examines what Ireland and the EU can learn from Australia’s trade deals with China. 

COUNTRIES EAGER TO do more business with a booming China have long looked enviously at Australia’s success story.

The value of trade between the two has more than doubled in the past 10 years alone, to reach AU$250 billion in 2019 (about €160 billion). Almost 40% of Australian good exports went to the People’s Republic that year, with raw materials like coal and iron ore
helping to power the Chinese economy.

For the past year, though, things have been rockier. Political tensions – notably the Australian Prime Minister’s call for an independent investigation into the origins of the coronavirus pandemic – have led to economic repercussions.

Since last May, China has hit Australian exporters with an escalating series of tariffs and unofficial boycotts affecting the likes of barley, coal, beef and wine. Chinese imports of the affected products fell off a cliff, shrinking by perhaps AU$20 billion.

The row has implications in this hemisphere too. If the Chinese government is willing to slap economic sanctions on previously friendly nations that dare to question its internal affairs, how stable can trade and investment relationships really be?

As one of our readers put it in a recent Open Newsroom comment: “China is not a good trading partner… ask Australia who’s currently suffering a boycott because they dared to question the origins of the virus.”

Policy-wise, that would point toward refocusing efforts to boost trade ties elsewhere. China’s ongoing ban on Irish beef, although apparently not political, gives a flavour of the turmoil that sectoral import restrictions can cause.

If Irish exporters were to become heavily reliant on the Chinese market, in the way that many Australian producers already are, what’s to stop the Communist Party using that as extra leverage to squash criticism of its human rights record?

On the other hand, given that China’s role in the world economy is only set to grow, perhaps there’s no getting away from the pressing economic need to do business there.

In which case, the real lesson from the Australia trade war might be: don’t mess with Beijing. But experts say that the Australian case study is less of a dire warning than it first appears.

“When other countries look at Australia’s experience with Chinese trade restrictions, there are both negative and positive lessons,” says Melissa Conley Tyler of the Asia Institute at the University of Melbourne.

The negative lesson is obvious: “It could happen to you – China has yet to learn that economic coercion is counterproductive.”

Look a bit closer, though, and there’s a growing consensus that the trade war hasn’t ended up hurting Australia all that much. Despite it coinciding with a pandemic, overall Aussie goods exports to China fell just 2% in 2020. Exports of iron ore – which can’t readily be sourced from elsewhere – have soared even as other sectors have suffered.

That not only softens the blow to the national economy, but also suggests that China’s willingness to lash out for political reasons has limits defined by self-interest.

Even the sectors specifically targeted have managed to find markets other than China.

“Boatloads of Australian wheat and coal now dock at new ports,” Conley Tyler says. “Even if a sector is hurt for a while – like brewing barley – it’s possible to find new markets, such as recent deals with beer-makers in Mexico.”

This has offset most of the losses in those sectors, according to calculations by the Lowy Institute think tank.

China’s bark, in other words, has been worse than its bite on this occasion.

It may be that the hype around Chinese trade and the Communist Party’s fearsome reputation can exaggerate fears about the consequences of offending its leadership.

“China makes more noise,” says Alicia García-Herrero, a senior fellow at the Bruegel European economics think tank.

She thinks the Australian lesson is that EU governments need to have more confidence in the strength of their position, rather than constantly worrying about what China might do in response to, say, criticism of its purported concentration camps.

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“We should have a relationship where we value what we bring to it, rather than fear what China might do to us. That’s a very different starting point,” the economist says.

She points to the example of Lithuania, an even smaller country than Ireland, which recently pulled out of the “17+1” group linking ex-Soviet countries to China: “How hard was that?”

An important factor in that decision was European diplomatic unity. Lithuanian foreign minister Gabrielius Landsbergis, recommending that other 17+1 members follow suit in dropping out, warned “the EU is strongest when all 27 member states act together along with EU institutions”.

Analysts often say that China is happiest playing geopolitical divide and rule.

Its relationship with New Zealand compared with Australia is a case in point: a recent editorial in the Communist Party’s Global Times newspaper pointedly noted that, “So far, trade disputes between China and Australia have not affected New Zealand’s exporters, and in some cases prevailing conditions have allowed their businesses to fill the market void left by Australian goods. Compared with Australia’s attitude toward China, it is New Zealand’s pragmatic approach has benefitted its economy.”

And it’s not just the Kiwis, Conley Tyler says. “For all the talk of solidarity and ‘having Australia’s back’, Boston lobsters and Canadian barley have quickly taken Australia’s place in the Chinese market.”

García-Herrero, like many experts, reckons that Western countries should put up more of a united front when the Chinese government lashes out.

While Ireland clearly won’t be getting involved with any grand geopolitical alliances like the “Quad” of Australia, India, Japan and the US, there’s plenty of scope for EU governments to pull closer together on China policy, not just in the areas where Brussels has exclusive powers to act (such as trade and investment deals).

In an ideal world, García-Herrero says, the EU would even put up a sort of “Michel Barnier for China – join forces even in areas where we don’t have full central policies, as we did for Brexit”.

That degree of EU unity and solidarity served Ireland pretty well during the Brexit crisis, and might well help in future if China’s next trade war falls closer to home – or to make sure it never does.

This work is co-funded by Journal Media and a grant programme from the European Parliament. Any opinions or conclusions expressed in this work is the author’s own. The European Parliament has no involvement in nor responsibility for the editorial content published by the project. For more information, see here.

About the author:

CJ McKinney  / Legal Affairs Journalist

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