China Down Under

How Australians view a trade war

Caught in the middle


The casual observer of global politics might think that Donald Trump’s recent attacks on Chinese trade practices would be winning fans among regional countries which, like the US, fret about Beijing’s rising power.

Australia, for example, is in a prolonged stand-off with Beijing over what Canberra’s leaders say are covert efforts by the Chinese Communist Party to manipulate politics in the country in its favour.

But Australia, like most other countries in the Asia-Pacific, dreads Trump’s tirades on trade, and not just because the country is a huge beneficiary of selling into the Chinese economy.

In my first column for Week in China, I wrote about Australia as a test case for how a developed, ‘Western’ country responds to China’s hydra-headed challenge. Put another way, Australia is the canary in the Chinese coal mine, a longtime ally of the US which is under pressure to move closer to Beijing.

Thus far, Australia has, by and large, refused to budge in the face of Beijing’s entreaties, at least as far as security goes. But when it comes to the economy, a different set of interests come into play.

Australia is one of the few developed countries which runs a trade surplus with China, mainly because it is a bulk supplier of raw materials, especially iron ore and coal, which are essential inputs into the mainland’s industrial economy.

Australia has a bilateral trade agreement with China, and, for all the complaints about blocked deals from Beijing, has been remarkably open to investment from its large northern neighbour. Booming tourism and education services make China Australia’s most important source of foreign income.

On top of that, Australia doesn’t compete with China directly on technology, an issue which is driving rising tension between Beijing and Washington.

Sure, Australia has an interest in keeping China’s feet to the fire in general, in making sure it abides by its commitment to the World Trade Organisation and ends its predatory practice of demanding foreign companies hand over technology as the price of entry into its market.

But it does not have any interest in a disruptive trade war of the kind being threatened by Trump to force open the China market.

With the tightly integrated supply chains linking east and southeast Asia to global markets, Australia knows a trade war with China is inevitably a trade war with Asia. Trump’s efforts to punish China will inevitably hurt every other country in the region as well.

The same logic applied in the 1990s, when Australia and other Asia countries opposed Bill Clinton’s administration’s tough line on trade against Japan, which was then considered the number one mercantilist threat to the US.

But more than anything, it is Trump’s unilateralism that puts Canberra, and other regional capitals, offside.

Many countries, in Europe and in Asia, support pressure on China to keep its market open. But instead of working with them, Trump continually goes its alone, precisely the wrong way to build an effective coalition.

Nothing better summed up Trump’s alienating of America’s friends than his imposition of tariffs on imported steel. Australia had to use enormous political capital in Washington to win an exemption from the tariffs, as did South Korea. Japan did not win an exemption at all, despite being America’s closest ally in the region.

Having unilaterally imposed an unfair measure on a close ally, Trump then bestowed the exemption on Australia as if he was doing the country a favour. With friends like these, is it any wonder that Australia feels squeezed between a confident China and a wayward America?

Richard McGregor is a senior fellow at the Lowy Institute and the author of books on Chinese politics and foreign policy, ‘The Party’ and ‘Asia’s Reckoning’.

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