On February 5, 2023, Australian and Chinese trade ministers met for the first time since 2019. The meeting came amidst Australia urging China to lift official and unofficial barriers that cost Australian exporters approximately 20 billion Australian dollars annually. Although Chinese Commerce Minister Wang Wentao described the virtual bilateral meeting with Australian counterpart Don Farrell as a critical step towards restoring trade cooperation, there will not likely be any significant improvement in economic relations between the two countries. Despite his apparent optimism, Wang made it clear that Beijing would not compromise on “principles” issues and that the trade disputes may not be resolved shortly.
A History of Economic Tensions
The recent meeting was a new development in the trade war between Australia and China that started around 2017 or 2018. In 2015, the China-Australia Free Trade Agreement (ChAFTA) came into effect, removing trade barriers between the two countries and liberalizing bilateral foreign investment. In late 2017, Australia passed the Foreign Influence Transparency Scheme following allegations of Chinese Communist Party (CCP) interference in Australian elections. Australia’s then-Prime Minister Malcolm Turnbull controversially declared that Australia would “stand up” to CCP influence in domestic politics, which generated diplomatic blowback in China.
In August 2018, Australia banned Chinese communications firms Huawei and ZTE from participating in building Australia’s 5G networks. China responded by applying an 80.5% anti-dumping tariff to Australian barley, a significant Australian export trade. Chinese officials were further enraged in April 2020 when then-Australian Prime Minister Scott Morrison endorsed an independent investigation into the origins of the COVID-19 pandemic. China subsequently applied regulations to Australian coal imports as a non-tariff trade barrier. In October 2020, Chinese mills were prevented from purchasing Australian cotton; this was a significant economic blow to Australia since China typically buys around 65% of Australian cotton. In the same fall, Chinese companies scaled back their purchases of several prominent Australian exports, including barley, coal, copper, lobster, sugar, timber, and wine. Further temporary Chinese anti-dumping tariffs were announced on Australian wine exports, ranging from 107-212%.
Following multiple geopolitical grievances relating to the United States, Taiwan, military ambitions, and research, economic analysts speculated that China might target Australian iron ore exports with tariffs, which constitute over half of the Australian exports to China. Iron ore’s status as an integral component of China’s heavy industries helps explain why the commodity was not singled out — and why the two countries are still sympathetic to attempts to repair bilateral relations. However, Australia filed an official complaint with the World Trade Organization (WTO) over China’s tariffs on various exports and announced its intentions of forming a free trade agreement with India to diversify Australia’s market away from China.
By the end of 2021, Beijing raised import quotas on Australian wool by 5% in a rare effort to thaw the bilateral relationship. Once the Australian Labor Party, led by Anthony Albanese, prevailed over Morrison’s relatively hawkish Liberal Party in the general election of 2022, a thawing in Australia-China relations seemed possible. In November 2022, in the leadup to the February 2023 bilateral meeting, Farrell declared Australia’s willingness to discuss economic off-ramps with China. At the beginning of 2023, China also partially eased its non-tariff regulations on Australian coal.
Recent reports suggest that China’s economic sanctions against Australia have been ineffective, and the CCP must contend with an increasingly critical regional rival. Albanese, far from being soft on Xi Xinping and the CCP, has expressed a desire for Australia to continue treating China as a threat rather than a partner. Polling indicates increasingly negative perceptions of China among Australians, many of whom fear the potential of Chinese aggression in coming decades. Negative Australian public sentiment regarding China is unlikely to help renew bilateral trade. Despite the recent meeting, Australia has expressed unwillingness to withdraw its WTO complaints against Chinese tariffs, notwithstanding political pressure from Beijing. China’s efforts to force Australia’s hand may have backfired as Australia has begun redirecting its exports to other countries such as India and Mexico. Australia’s attempt at diversification, coupled with its increasing geopolitical alignment with the United States, indicates that despite a formal diplomatic rapprochement, the Australia-China trade war is unlikely to end in the short term.