Fortnight of 31 January to 13 February 2022

Quad contra economic coercion

From the 11 February joint statement by the Quad foreign ministers:

“We reaffirm our commitment to upholding and strengthening the rules-based multilateral trading system, with the World Trade Organization at its core. We oppose coercive economic policies and practices that run counter to this system and will work collectively to foster global economic resilience against such actions.”

Quick take:

This latest Quad ministerial meeting is the first time that the grouping has collectively called out economic coercion specifically. Past leader-level Quad statements in March and September 2021 raised concerns about “coercion” in general. Meanwhile, Australia has issued bilateral statements with all three of the other Quad countries raising concerns about economic coercion. But the explicit expression of collective opposition to “coercive economic policies and practices” is a noteworthy evolution in the Quad’s diplomatic messaging. (Unless I’ve missed something?)

When the Quad foreign ministers met in October 2020 for their second ministerial meeting, China’s campaign of economic coercion was already more than four months old. Despite this, the accompanying media release made no mention of coercion, much less coercion of an economic kind. The public readouts from the series of Quad Senior Officials’ Meetings equally don’t flag explicit concerns about coercion of any kind. Although stopping short of mentioning economic coercion specifically, the third Quad foreign ministers’ meeting in February 2021 pledged to support a region “free from coercion”. Contrasting these past diplomatic statements with the Quad’s now clear opposition to “coercive economic policies and practices” highlights the striking alignment of the grouping’s stance with Australia’s regular criticisms “economic coercion”.

As the candour of Quad ministerial joint statements stiffens, the scope and scale of the gatherings grow. Starting with a lowkey readout of the first meeting in 2019, the Quad ministerial mechanism now also features photo opsop-eds, and general pomp and circumstance. Unsurprisingly, China’s economic coercion of Australia featured prominently in these diplomatic garnishes, including in media appearances on the Quad ministerial sidelines by Secretary of State Antony Blinken and External Affairs Minister Subrahmanyam Jaishankar. With the addition of these repeated concerns about economic coercion in the Quad agenda, it seems that Australia has successfully used this minilateral mechanism to prosecute its diplomatic agenda of naming and shaming China’s behaviour. (Incidentally, the Quad’s expression of concern about coercive economic practices followed a similar message in a joint Australia-Lithuania statement and coincided with the release of the US Indo-Pacific Strategy, which explicitly cited China’s economic coercion of Australia as a top-level regional concern for Washington.)

It remains to be seen whether this diplomatic strategy of seeking to impose reputational costs via the Quad and other fora will materially change China’s behavior towards Australia. But regardless, this Quad messaging on economic coercion is likely to further compound Beijing’s suspicions of the grouping. A few days after the Quad ministerial meeting, Ministry of Foreign Affairs Spokesperson Zhao Lijian fired back dismissively: “China believes that the so-called Quad group cobbled together by the US, Japan, India, and Australia is essentially a tool for containing and besieging China to maintain US hegemony. It aims to stoke confrontation and undermine international solidarity and cooperation.”

China’s opposition to the Quad isn’t new. As Zhao himself noted while delivering this recent broadside: “I have expounded on our position on the Quad for many times.” [sic] But the inclusion of thinly veiled concerns about China’s economic coercion in the Quad joint statement can be expected to harden Beijing’s perception that the grouping has an anti-China bent. This isn’t to say that the Quad shouldn’t raise concerns about economic coercion. But aligning the Quad with Australia’s diplomatic messaging is likely to give the grouping (even more of) an unmistakably China-focussed agenda.

Values-based foreign policy

Prime Minister Scott Morrison’s remarks to the Quad foreign ministers on 11 February:

“We are great democracies, great liberal democracies, who see an economy that is founded on enterprise and innovation, and we support a world order that favours freedom through our international institutions, and it was liberal democracies that provided the framework and the foundation for those important institutions of our world, and we will always work together, I think, to reinforce those to to [sic] ensure that all countries can enjoy their own sovereignty and the freedoms of their own peoples.”

Quick take:

The Quad’s joint statement was light on ideological rhetoric about liberal democracy. Except for concerns about human rights in Myanmar, the norms and rules that it espoused were primarily focussed on how states interact. Although the joint statement shied away from issues of political legitimacy and systems of government, it was unequivocal on its preferred principles of international relations: “Quad partners champion the free, open, and inclusive rules-based order, rooted in international law, that protects the sovereignty and territorial integrity of regional countries.” The statement reiterated past support for a “free and open Indo-Pacific” but made plain that this emphasis on freedom was a matter of states being able to prosecute their interests “free from coercion” rather than being concerned with domestic political values and institutions.

Although consistent with the Prime Minister’s previous characterisation of his overarching political vision for the world, his emphasis on the virtues of liberal democracy stands in stark contrast to the Quad ministerial statement’s emphasis on the norms and rules of state-to-state relations. But despite the contrast with the Quad as a whole, the US and Australian ministers seemed to follow the Prime Minister’s lead and characterise the Quad as, among other things, a grouping of “four great liberal democracies”. As Minister for Foreign Affairs Marise Payne put it in an op-ed: “The Quad has particular value because we are four of the leading democracies in the region, with the will and the capability to work with all our friends and partners, while standing firm against the risk authoritarianism poses to all countries who do want to make their own strategic decisions, free from coercion.”

It remains unclear whether more emphasis on liberal democratic values will emerge as a feature of Quad rhetoric. For now, it seems unlikely, especially considering that the Japanese and Indian foreign ministers generally steered clear of such political rhetoric. But regardless of whether the Quad as a whole formally enters the ideological fray, China won’t resile from a fight over political values. In response to a question about democracy and the Quad agenda, Ministry of Foreign Affairs Spokesperson Zhao sought to pre-emptively delegitimise any Quad advocacy on political values: “democracy is a common value of humanity, not a monopoly of a few countries. It’s up to the people of a country to decide whether this country is democratic or not. Despite its ruined democratic brand, the US still forces other countries to accept its democratic standards and cobbles together cliques by drawing the ideological line. This is sheer betrayal to democracy.” So, regardless of whether liberal democratic rhetoric formally shapes Quad messaging, it seems likely that ideology will increasingly infuse the geostrategic competition between the Quad and China.

Ongoing export redirection

Based on the latest trade data, the combined monthly value of Australia’s nine exports targeted by China’s trade restrictions (to China, the rest of the world, and total, May 2020 to November 2021):

Quick take:

The latest trade data from November 2021 seems to again tell a relatively upbeat story about the ability of Australian exporters to redirect to other markets. The above graph covers all nine exports impacted by China’s confirmed trade restrictions: barley, beef, cotton, timber products, coal, copper ores and concentrates, sugar products, crustaceans, and wine. As they have for effectively all of 2021, the value of exports of coal, copper ores and concentrates, and barely to China were still flatlining at zero as of November 2021. Meanwhile, there wasn’t a significant uptick in the overall value of the other targeted exports to China, which remained down on their levels prior to the introduction of trade restrictions.

But the total value of the nine targeted exports to the rest of the world was hovering around A$10 billion a month as of October-November 2021. That is by a wide margin a record high since May 2020 when China introduced the first in an expanding barrage of politically punitive trade restrictions. Although the monthly value of these exports to China in November 2021 was approximately 9% of its value in May 2020, the value of these same nine exports to the rest of the world in November 2021 was approximately 267% of its value in May 2020. Given the persistently high coal prices and the disproportionate overall value of coal exports in this basket of nine exports, it’s worthwhile considering the monthly value excluding coal. But even taking coal out of the equation, the value of the other eight Australian exports to the rest of the world in November 2021 was approximately 186% of its value in May 2020.

The data points to ongoing successful export redirection to alternative markets in the wake of China’s trade restrictions. But the simple monthly value of impacted exports is far from the full story. As well as elevated coal prices, these values are being driven by a range of fortuitous circumstances for Australian exporters. These include factors such as global food prices rising to their highest level since June 2011, high global prices for specific impacted agricultural exports like barley and cotton, and generally favourable growing conditions in Australia. For example, the volume of the 2020-21 Australian barley season was the second highest on record behind 2016-17. So, although the monthly value of targeted Australian exports has surged despite China’s trade restrictions, these industries may yet face much tougher times if Beijing’s ongoing economic coercion is combined with less favourable weather and market conditions.

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.