As China's beef with Australia hits its economy, will Canberra be cowed?

As the 2007-08 global financial crisis ravaged the world economy, Australia leaned on booming exports to China, which only months earlier had eclipsed Japan as the country's largest trading partner.

The roaring trade in commodities such as iron ore and coal helped Australia emerge as one of a handful of developed countries to avoid an economic downturn.

A little over a decade on, Australia's reliance on China is increasingly viewed as less of a lifeline and more as a risk, a fear exposed last week after Beijing imposed restrictions on Australian imports in a move widely seen as punishment for Canberra seeking an inquiry into the origins of the coronavirus pandemic.

"The ability to separate the economic and political relationships with China " the cornerstone of Australia's China policy since the mid-1990s " has been revealed as untenable in recent weeks," said Jeffrey Wilson, research director at the Perth USAsia Centre. "This is because the Chinese government has adopted a Trump-like strategy of using trade coercion to retaliate in diplomatic stoushes."

A butcher cuts up a leg of Australian lamb at his store in Melbourne on May 12, 2020. Photo: AFP alt=A butcher cuts up a leg of Australian lamb at his store in Melbourne on May 12, 2020. Photo: AFP

For years, Australian leaders have insisted the country can reap the benefits of a lucrative trading relationship with China without sacrificing its liberal Western values or close security alliance with the United States.

Although relations between Canberra and Beijing have been strained in recent years by allegations of Chinese political interference and differences over issues such as the South China Sea and tech giant Huawei, economic ties had until now gone from strength to strength.

Prime Minister Scott Morrison has refrained from echoing Washington's description of Beijing as a "strategic rival" and shortly after taking office stressed that Australia would not be taking sides in the increasingly heated competition between the sides.

But after China's move to suspend imports from four Australian abattoirs and impose an 80 per cent tariff on Australian barley, the export-driven middle power has been forced to weigh the literal costs of defying Beijing's will.

In 2018-19, China bought more than one-third of Australia's total exports, worth A$153 billion (US$99 billion), a share that has nearly doubled in a decade. Beef and barley exports alone are worth some A$2.6 billion and A$1.5 billion (US$1.6 billion and US$960 million), respectively, for Australian producers each year.

Australian Prime Minister Scott Morrison says the need for a coronavirus inquiry is a "commonsense position". Photo: AAP alt=Australian Prime Minister Scott Morrison says the need for a coronavirus inquiry is a "commonsense position". Photo: AAP

The trade blows, which come amid new figures showing the loss of nearly 600,000 Australian jobs in April alone, follow a warning by Chinese ambassador Cheng Jingye last month that Chinese consumers could boycott Australian beef and wine over Canberra's push for an international inquiry into the origins and spread of the coronavirus.

Beijing has blasted the proposal as a political move to smear China, arguing that the origins of the Covid-19 disease, which was first detected in the city of Wuhan, should be "assessed scientifically by medical professionals".

While distancing himself from the theory pushed by US President Donald Trump that the virus may have originated in a Wuhan lab, Morrison has described as a "commonsense position" the need for an "independent assessment of what has occurred".

"There's a growing sense of unease and disquiet about how forthright China is prepared to be," said John Blaxland, a professor at the Strategic and Defence Studies Centre at the Australian National University. "This is China's modus operandi. This is the way it works to exert influence, and it's the new normal."

China has used its economic leverage to punish its trading partners before.

In 2017, Beijing orchestrated an unofficial boycott of South Korea's tourism industry after the US ally deployed a Washington-backed missile system on its soil, inflicting estimated losses of 7.5 trillion won (US$6.7 billion) between January and September of that year.

For Australia, recent developments had served as a "warning shot" about the dangers of over-dependence on China, said Malcolm Davis, a senior analyst at the Australian Strategic Policy Institute.

"I do think we are going to take a hard look at our vulnerabilities brought about by over-dependence on distant supply chains, notably those that originate in China," Davis said. "Whether this will lead to a degree of decoupling from those supply chains will depend on to what extent we can replace Chinese-based supplies with alternatives in other states, and to what extent Australia can build greater resilience through boosting local manufacturing."

While Beijing has insisted its trade restrictions relate to quarantine and inspection violations and unfair trade practices, Chinese officials have continued to make their displeasure with Canberra known. On Tuesday, foreign ministry spokesman Zhao Lijian warned that "political manoeuvres" like Australia's proposed inquiry would never gain ground.

Chen Hong, director of the Australian Studies Centre at the East China Normal University in Shanghai, said there was increasing frustration in China with "Australia's incessant demonstration of hostility".

"Media outlets and political figures openly argue about the so-called over-dependence on the Chinese market, and advocate to diversify trade partners and sources of tourists and students," Hong said. "In other words, it is Australia that has been making threats and promoting the idea of stopping the mutually beneficial economic, trade and investment exchanges with China."

Australia's handling of ties with China has not escaped criticism at home either. Although a push for answers about the origins of the virus has been broadly welcomed across the political spectrum, the government's public call for an inquiry before consulting privately with China or other like-minded countries has been criticised by a number of opposition politicians, business leaders and former envoys.

"What did we achieve?" said Bob Carr, a former foreign minister. "We haven't got the strong support of other American allies. We got a little pat on the head from Trump and [Secretary of State] Pompeo. Big deal.

Carr said Canberra in recent years had antagonised Beijing with "ideological speeches", pointing to the example of former prime minister Malcolm Turnbull publicly linking new foreign interference laws to concerns about Chinese influence in 2018.

There was no reason Australia could not follow a "pragmatic policy with China that puts Australia's self-interest first and foremost", the former diplomat said, without sacrificing any of "our values like our commitment to the international law of the sea or on human rights".

"When people say 'decoupling', I say, well, nominate what industry?" said Carr. "There is no plan for Australia's economic recovery or for us returning to surplus budgets without China."

Australian beef on sale at a supermarket in Beijing on May 12, 2020. Photo: AFP alt=Australian beef on sale at a supermarket in Beijing on May 12, 2020. Photo: AFP

While Canberra has remained firm in its position on an inquiry so far, it has given no indication of wanting to engage in a trade war with its biggest trading partner and has refrained from directly accusing Beijing of economic retaliation. Even as talk of economic decoupling grows, it is widely acknowledged that Australia has limited room for closing off Chinese trade.

"Decoupling overall is not realistic because of raw materials " iron ore, coal and natural gas " which makes up the bulk of bilateral trade," said Wilson, while arguing that diversifying trade in noncore industries was now an "existential requirement".

"Any suspension to these would be mutually assured destruction " it would greatly harm both Australia and China, which relies on these minerals for its heavy industries."

Despite the economic exposure, Australia may still be increasingly willing to swallow some economic pain when it believes it necessary to challenge China.

In an essay published by the Asia Society last week, Richard Maude, a former senior diplomat, said Australian governments in recent years recognised that relations would be "shaped more strongly by points of difference than in the past" and had "greater patience with cool political ties".

Public sentiment is also shifting against Beijing. In an opinion poll released by the Sydney-based Lowy Institute on Thursday, 68 per cent of Australians said Beijing's handling of the coronavirus made them feel less favourable towards China's system of government. Only 31 per cent thought Beijing had handled the pandemic well.

This article originally appeared on the South China Morning Post (SCMP).

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