Australia’s relationship with China was severely affected when Beijing blocked the import of roughly a dozen Australian goods worth around AU$20 billion annually in May 2020. While the deteriorating political relationship between the two countries was the immediate cause, a trade deal between Beijing and Washington was also a factor. The disruptions in trade were costly and threatened economic security, but withdrawing from openness and economic engagement is not the answer. This article will explore the lessons from Australia’s relationship with China and the importance of multilateralism in trade.
Steady Australian Exports to China
Despite the political tension, Australian exports to China remained steady in 2020 and grew by 14% in 2021 and 6% in 2022. The growth was mainly driven by exports of iron ore, which could not be readily sourced by China from elsewhere, and the rapid growth of other commodities like lithium exports. China accounted for over 40% of Australian goods exports during that time and helped Australia weather the economic effects of the COVID-19 pandemic.
Multilateral Trading System and Flexible Markets
Australian exporters quickly found other markets, especially for wine and lobster, 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 that ensured trading options remained open. Contestable markets also crowded out the effects of weaponised trade, but there were adjustment and political costs.
Importance of Multilateralism in Trade
The redirection of trade was led by market opportunities, and at the centre of that system is the World Trade Organization (WTO), which despite its weaknesses, holds together the trading system with a patchwork of WTO-plus free trade agreements built around it. Interdependence underpinned by multilateralism effectively diffuses risks. The primary lesson of Australia’s 2020 export experience was that the economic weapons China fired were blunted by the multilateral trading system.
The strategic interest is still to lock China into rules, norms, and markets. The rest of the world needs the rules-based international order for economic security. The joint objective of Australia and Japan should be to get the United States back into the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), without eroding rules or standards. These efforts should not come at the expense of the main goal of preserving and strengthening the multilateral trading system, especially the WTO.
Conclusion
In conclusion, the lessons from Australia’s relationship with China highlight the importance of multilateralism in trade. While trade disruptions are costly and threaten economic security, withdrawing from openness and economic engagement is not the answer. The redirection of trade was led by market opportunities, but the crucial external source of resilience was an open multilateral trading system that ensured trading options remained open. The primary lesson of Australia’s 2020 export experience was that the economic weapons China fired were blunted by the multilateral trading system. In this context, efforts should be made to strengthen the WTO and lock China into rules, norms, and markets while preserving and expanding the multilateral trading system.