Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Few trade conflicts can be calibrated quite so precisely, commodity by commodity, as the China-Australia spat whose denouement continued to play out last week. Four years after Beijing started to impose trade bans in retaliation for Canberra’s temerity in suggesting an inquiry into the origins of Covid-19, China lifted its tariffs on imports of Australian wine. It has already eased restrictions on trade in coal and barley: there are now rock lobsters and beef to go. For its part, Australia dropped a World Trade Organization case against Beijing over the wine tariffs.
Both sides portrayed the outcome as a mutually beneficial de-escalation of tensions. But fair-minded observers would award a win on points to the country of almost 27mn people with a gross domestic product of $1.7tn against the one with an economy 10 times the size which also has nuclear weapons. Australia stuck to its geopolitical stance as a strong US ally and China backed down. With resistance to economic coercion a pressing issue, the episode has been keenly watched in Brussels, Washington and Tokyo — and indeed in Brasília, Jakarta, Hanoi, Seoul and New Delhi.
Australia’s resilience owed much to its economic flexibility, its barley and wine exporters rolling with the punch of trade restrictions and finding new markets elsewhere. Perhaps less appreciated is the country’s other strength — a degree of policy coherence and political consensus which resisted attempts by Beijing to bully and sow division.
In this context Australia starts with the advantage of a parliamentary system with a strong executive, helping create focus and consistency — unlike, for example, the US’s separated federal powers or the EU’s multi-layered system of commissioners, the European parliament and member states.
But it’s about political choice as well as constitutional inheritance. Since the liberalising reforms started by the Labor government under prime minister Bob Hawke in the 1980s, Australia has hammered out a cross-party open-trade consensus. An effective business-government nexus promotes exports in the economy’s comparative advantages of agriculture, food and minerals, and more latterly education and tourism.
Australia has aligned its trade policy with its national security interests. In 2022 it signed a preferential trade agreement with India to signal diversification from China, and has used its investment screening powers to block Chinese takeovers of Australian businesses.
Indeed, the country’s determination to maintain political independence from China has also recently extended to jailing a businessman who broke a tough law against foreign interference by trying to influence a government minister.
Throughout the period of the dispute, there was remarkably little partisan divide over maintaining a robust policy towards China’s coercion — beyond some opportunistic point-scoring during the general election of 2022 in which Anthony Albanese replaced the Liberal prime minister Scott Morrison. Albanese has attracted criticism for being the first prime minister to visit China since 2016, but he made sure first to go to Washington to confirm the alliance with the US.
Contrast this with other advanced economies. Even before Donald Trump, the US failed to make trade policy cohere with its geostrategic rivalry with China. George W Bush and Barack Obama’s administrations created the Trans-Pacific Partnership, aimed at encircling China with a ring of economies aligned with a US model of trade, but Congress blocked it in a fit of parochial mercantilism over tobacco and pharmaceuticals. Trump then handed Xi Jinping a propaganda victory by being duped into a deal to buy American exports which China signally failed to keep.
The US can’t now sign any substantive trade deals at all thanks to the toxicity of the issue in Washington. Joe Biden’s administration isn’t just at odds with Congress and previous administrations: it’s fighting itself. Out of the blue, the US trade representative’s office recently reversed a long-standing US consensus policy on cross-border data flow, thereby sabotaging its own (in any case largely symbolic) trade agreements with Asia-Pacific countries. Beijing must have found it hard to keep a straight face.
EU trade policy has somewhat more consistency and less hysteria, with the commission providing a degree of continuity. There is also a growing consensus about the dangers of China. Whatever their private views on the wisdom of Lithuania provoking China by upgrading diplomatic ties with Taiwan in 2021, the rest of the EU did at least rally round the Baltic state when China retaliated with trade restrictions.
Still, member states’ retention of national security powers undermines united fronts on issues such as Huawei’s participation in 5G systems or screening Chinese inward investment. Hungary’s Prime Minister Viktor Orbán revels in breaking EU solidarity to deal with Vladimir Putin and Xi. Orbán has persuaded the Chinese electric-vehicle manufacturer BYD to set up its first European plant in Hungary, and is building a rail line from Budapest to Belgrade with Chinese help.
Nor is there even a coherent foreign policy from the EU’s leading western European governments. The French President Emmanuel Macron dismayed other EU governments last April by unilaterally striking a remarkably pro-China note following a trip to Beijing.
Australia’s trade and security strains with China are certainly not over. Any tension in the region involving China never is. But Canberra’s success in this particular episode underlines that conflicts are best fought with unity on the home front. Today wine, tomorrow hopefully beef and lobsters: the redoubts of Chinese trade coercion continue to fall.
alan.beattie@ft.com