Week of 22 to 28 November 2021

Still welcoming ‘win-win’

Minister for Defence Peter Dutton speaking at the National Press Club on 26 November:

“Australia has welcomed China’s rise as a major economic power in the region.”

“We want China to continue to do well economically.”

“We want to see the Chinese people continue to prosper.”

“We want a productive trading partnership with China – one that mutually benefits both our peoples.”

Quick take:

Minister Dutton’s speech included strong criticisms of the Chinese government and dire predictions about possible future trajectories for China’s statecraft. Understandably, these elements of his remarks attracted the bulk of media and public attention. But as well as highlighting the depth of concerns about China in some quarters in Canberra and around Australia, the Minister’s remarks are also a striking reminder of the distance between the United States and Australia in the geoeconomic realm. These comments suggest that even the Australian Minister for Defence—who is among the government’s strongest critics of Beijing—has a markedly more positive view of China’s economic rise than the US Secretary of Commerce.

Canberra’s and Washington’s misgivings about Beijing’s behaviour are broadly aligned on human rights, Taiwan, the South China Sea, and a range of other diplomatic, geostrategic, and political questions. Both the United States and Australia seek many of the same general outcomes: better protection of human rights in China, the preservation of the status quo in Taiwan, and China’s observance of the United Nations Convention on the Law of the Sea (UNCLOS) in the South China Sea and elsewhere. Of course, Washington and Canberra each use different methods for pursuing these generally similar goals. For example, while Canberra has ratified UNCLOS and Washington (seemingly) won’t, the US Navy regularly asserts navigational rights under UNCLOS that Australia doesn’t.

Regardless of these divergent strategies, both Washington and Canberra are still working towards complementary goals in a broad range of diplomatic, geostrategic, and political arenas. By contrast, Minister Dutton’s comments highlight an overarching divide between Australia and the United States on the geoeconomic front. Whereas Australia welcomes China’s economic rise, the United States appears to view it as a threat, especially in the arenas of emerging technology and the innovation economy. Although Washington’s trade and China policies seem to still be under development, the signs so far suggest that the United States will continue constraining China economically via a combination of competition and economic coercion. Despite the deepening strategic alignment between Washington and Canberra, it’s noteworthy that one of the Australian government’s most forward-leaning China sceptics hasn’t embraced the adversarial US approach to economic statecraft.

Positive signals?

Australia’s International Business Survey (AIBS) 2021 paraphrasing the owners of Bec Hardy Wines, a family-owned wine business based in McLaren Vale:

“The owners highlighted that the short-term opportunities in China will be constrained, but (they) remain confident of the medium to long term prospects there.”

Quick take:

Given the year of trade restrictions suffered by Australian wine exporters in China, this optimism is remarkable. But it’s not entirely isolated. It follows recent Xinhua reporting quoting a representative from an Australian company during the China International Import Expo: “Economies between China and Australia are complementary. The relationship will be back to normal sooner or later. After all, a sound and healthy relationship of the two countries benefits the ordinary people.” Notwithstanding these upbeat assessments, gloomy bilateral prognostications also abound. CGTN characterised the recent remarks from China’s Chargé d’Affaires in Canberra, Wang Xining, with this headline: ‘Chinese envoy: Time not conducive for ministerial talks with Australia’.

It’s still entirely possible that 2022 will see an easing of China’s trade restrictions and a resumption of ministerial dialogue. But as I’ve argued before, significant tests of the bilateral relationship may lay in store in the final weeks of 2021 and into 2022—ranging from future potential uses of the Foreign Relations Act to the outcome of the review of the 99-year lease of Darwin Port. Combining these possible future bilateral potholes with the likelihood of yet more rhetorical sound and fury as China policy emerges as a election issue in Australia, it seems that additional trade restrictions are just as likely as a winding back of China’s campaign of economic coercion.

Carry on and diversify

Minister for Trade, Tourism and Investment Dan Tehan’s media release in relation to AIBS 2021:

“Businesses also underscored the importance of market diversification when exporting, with those businesses selling into a greater number of export markets more likely to report being better off financially compared to a year ago.”

Quick take:

AIBS 2021 was released the same week as the Australian Strategy for International Education 2021-2030, which aims to rebuild Australia’s international education sector more sustainably and create new opportunities for growth. Resilience and diversification are key themes in both documents. Each adds more detail to Australia’s “China plus” trade policy: Continue to pursue export opportunities in China while also seeking to expand trade links elsewhere to provide ballast in the event of market disruptions. Given the natural economic complementarities between Australia and China and the sheer size and value of the Chinese market, it remains uncertain whether the long-term and difficult task of export market diversification will offset potential future losses for Australian businesses excluded from the Chinese market. Regardless, the short- to medium-term story of Australia’s export redirection in the face of China’s trade restrictions is a generally positive one: As an emerging body of research highlights (especially here and here), open global markets and Australia’s competitive industries have blunted the economic costs of China’s economic coercion.

As always, thank you for reading and please excuse any errors (typographical or otherwise). Any and all objections, criticisms, and corrections are very much appreciated.