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Learning the right lessons from Chinese sanctions on Australian imports



A chef cooks Australian lobster at at an Australia's food booth at the third China International Import Expo (CIIE) in Shanghai, China, 6 November 2020 (Photo: Reuters/Aly Song

Author: Shiro Armstrong, ANU

From May 2020 Beijing blocked the import of roughly a dozen Australian goods for which China was the major market, cutting imports worth around AU$20 billion (US$13.4 billion) annually. The deteriorating political relationship between Canberra and Beijing was the proximate cause but a trade deal between Beijing and Washington involving increased Chinese imports of US agricultural and other goods was also a factor.

Such large disruptions to trade are costly and threaten economic security. But retreat from openness and economic engagement is not the answer — that’s a pathway to a poorer and much less secure world.

Australia’s exports to China remained steady in 2020 and grew by 14 per cent in 2021 and 6 per cent in 2022, all while the global economy suffered from COVID-19 lockdowns and economic downturns. Australian exports of iron ore, which could not be readily sourced by China from elsewhere, and the rapid growth of other commodities like lithium exports, led the way. China accounted for over 40 per cent of Australian goods exports during that time and helped Australia weather the economic effects of the COVID-19 pandemic.

Australia is no stranger to having one country dominate its international trade shares. In the past Japan, the United States and the United Kingdom have accounted for around as much as China does today. This geographic specialisation is a sign of Australian success in utilising its economic endowments and taking advantage of opportunities internationally. Australia has put in place institutions and economic policy settings to manage these highly interdependent economic relationships and successfully dealt with occasional shocks in their fortunes.

Chinese trade sanctions caused Australian exporters — especially of wine and lobster — huge losses. But most exporters quickly found other markets as Chinese imports of barley, coal and other commodities did not slow and opened up other demand. Flexible markets in Australia helped but the crucial external source of resilience was an open multilateral trading system which ensures that trading options remain open. Contestable markets crowd out the effects of weaponised trade but there are adjustment and political costs.

Australian exporters found other markets mainly due to a multilateral trading system which ensures that trading options remain open. Neither exporters nor the Australian government knew exactly where those markets would be ahead of the event. The redirection of trade was led by market opportunities. At the centre of that system is the WTO, which despite its weaknesses, holds together the trading system with a patchwork of WTO-plus free trade agreements built around it.

Two dozen WTO members, including China and Australia, have signed onto the Multi-Party Interim Appeal Arbitration Arrangement so that WTO rules are enforceable even while the United States holds the system hostage with its veto of the appointment of arbitration judges. Australia has cases against China in the WTO that will be enforceable through China’s commitment to the MPIA. Japan has also joined, a major development that signals Japanese commitment to take a lead on international economic rules.

As the world’s largest trader, China has a huge stake in the existing multilateral trading system. China’s non-observance of the spirit of multilateral trade rules, like that of the United States and Europe, and its gaming of the system are not reasons to give up on the WTO. Chinese efforts at economic coercion have almost entirely failed and in every case its actions have backfired economically or politically.

It is possible to find ways to mitigate and diffuse trade risks by deepening involvement and strengthening rules, rather than by avoiding engagement. Economic engagement builds national wealth and power — and when combined with multilateral rules, broadens the range of strategic policy options available to national policymakers.

A China that is much less integrated into the global economy is one with far fewer political constraints and thus is much more of a security risk.

Russia’s strategic use of gas supplies against Europe is sometimes cited as a counterpoint to the argument for interdependence. But Russia was not integrated into European supply chains and European energy dependence on Russia is qualitatively different from economic interdependence in East Asia. Interdependence underpinned by multilateralism effectively diffuses risks.

Nowhere is the power of multilateralism understood better, and is it exercised…

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Policy failure with Italian characteristics?



Italian Prime Minister Giorgia Meloni at a press conference after the Council of Ministers, Rome, Italy, 3 November 2023 (Photo: Reuters/Augusto Casasoli).

Italy’s participation in China’s Belt and Road Initiative may end in 2024. The decision to join in 2019 led to political and economic costs that have not been offset by expected benefits.

Italy’s Withdrawal from the Belt and Road Initiative

Italy’s participation in the Belt and Road Initiative (BRI) may soon come to an end, as the country entered China’s initiative in March 2019. A Memorandum of Understanding (MoU) was signed in Rome by former Italian prime minister Giuseppe Conte and Chinese President Xi Jinping. Less than five years later, the whole BRI story risks becoming a major foreign policy failure for Italy.

Debating Italy’s Participation in the BRI

The MoU will be automatically extended in March 2024, unless terminated by either party at least three months in advance. As the deadline approaches, the government of current Prime Minister Giorgia Meloni is expected to announce its decision soon. In 2019, the Conte I government’s decision to sign the MoU was made amid a heated yet highly ambiguous political debate.

The Downside of Italy’s BRI Gamble

Italy’s gamble in joining the BRI has not paid off as expected. Critics have scrutinized Italy’s involvement in the BRI, and the COVID-19 pandemic has affected anticipated economic benefits. As a result, Italy has been unable to fully leverage the MoU and engage effectively with Chinese stakeholders, leading to a shift away from emphasizing its involvement in the BRI.

Source : Policy failure with Italian characteristics?

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Australia’s troubled EU trade deal still second best



Sheep run into a holding pen at a farm near Delegate, in New South Wales, Australia, 19 November 2023 (Photo: Reuters/Peter Hobson).

The proposed trade agreement between Australia and the EU is in trouble due to EU protectionism, particularly in agriculture. This offers lessons for both parties and poses a potential threat to the Asia-Pacific region’s trade diplomacy.

Trouble in the Australia-EU Preferential Trade Agreement

Author: Ken Heydon, LSE

After five years of intense negotiation, the proposed preferential trade agreement (PTA) between Australia and the European Union is in trouble. On 29 October 2023, talks were suspended, with little immediate prospect of resumption. This setback, plus other recent developments in EU preferential trade policy, offer some broad lessons — for both Australia and the region.

Issues and Challenges

The failed negotiation is, in part, a victim of current times. With liberal trade policy in retreat, government-fuelled industrial policy is on the rise, and, according to the Eurobarometer Poll of July 2022, the majority of Europeans now view protectionism positively. The immediate cause of breakdown in the talks was, unsurprisingly, agriculture. This is the sector that, given EU intransigence, was a key factor in the failure of the Doha Development Round of multilateral trade talks.

Implications and Lessons

Australia’s particular concerns during negotiations with Brussels arose from EU resistance to opening up its market to Australian beef and sheepmeat, and protective geographical indications that would restrict the labelling of Australian feta cheese and prosecco. As highlighted by the WTO Trade Policy Review of the EU, the number of products subject to EU ‘geographical indication protection’ continues to rise. Looking ahead, there are still some broad strategic factors that might favour a deal. For the European Union, this includes gaining secure access to Australia’s critical minerals, such as lithium and copper.

Source : Australia’s troubled EU trade deal still second best

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New US–China working groups bridging bilateral gaps



US Treasury Secretary Janet Yellen walks with China's Vice Premier He Lifeng during their meeting at the Diaoyutai State Guesthouse, Beijing, China, 8 July 2023 (Photo: Reuters/Pedro Pardo).

US-China economic and financial working groups established in September 2023 aim to stabilize relations and prevent economic decoupling, addressing trade imbalances and fostering dialogue between the world’s largest economic powers.

US–China Economic and Financial Working Groups

The establishment of the US–China economic and financial working groups in September 2023 marked a significant turning point in the often uneasy relations between Washington and Beijing. In the midst of increasing tensions due to great power rivalry, these working groups have the potential to promote greater stability between the world’s two largest economic superpowers.

Challenging the Notion of ‘Decoupling’

While ‘decoupling’ has become a popular term representing the United States and China’s efforts to separate their economies, the establishment of the working groups challenges this idea to a certain extent. Policymakers on both sides understand the risks associated with complete economic decoupling, as bilateral economic ties are characterized by intrinsic interdependence.

Promising Benefits and Potential Challenges

The working groups, supported by high-level officials from both countries, offer a structured channel for ongoing dialogue. They have the potential to promote trust, transparency, and direct communication while also addressing challenges such as structural trade imbalances and intense rivalry in high-tech competition.

Source : New US–China working groups bridging bilateral gaps

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