China’s hard line against Australia is a lesson for us all

Australia has become Beijing’s preferred pinata as China lashes out against perceived disrespect from other governments. Apparently willing to take a wait and see approach on relations with the United States and Japan as new administrations find their feet — and, it is hoped in Beijing, reset relations in a more accommodating fashion — Canberra in contrast has been handed an expansive set of demands that must be met for bilateral relations to return to what Beijing considers normal. Until then, Australia’s number one trade partner is imposing painful trade sanctions.

The strategy is no doubt gratifying to the Chinese, but it is short sighted and almost certain to backfire. It exposes as humbug the claim that Beijing respects other country’s internal affairs, and creates a rallying point for other governments subject to its economic coercion. It also underscores the need for a farsighted and comprehensive national economic strategy, one that appreciates and anticipates all the elements of national economic statecraft.

While tensions between Australia and China have been on the rise for several years, the economic fight began in earnest several months ago when Canberra backed calls for an international investigation into the origins of the COVID-19 outbreak. China’s ambassador to Australia responded by warning that such an inquiry might prompt Chinese to ask “Why should we drink Australian wine? Why eat Australian beef?”

It has become clear that those weren’t rhetorical questions. As the number of alleged Australian transgressions has grown, China has imposed tariffs on a lengthening list of Australian exports. Last week, Beijing announced that it would impose tariffs of up to 200% on Australian wine. Jeffrey Wilson, an economist at the Perth USAsia Centre, reckons that the total value of Australian goods at risk from the sanctions is about $40 billion, although actual losses are only $2 billion to $4 billion. That figure will grow if China cuts the number of tourists and university students to Australia. (The numbers are already down because of the COVID-19 outbreak, however.)

Rather than intimidate, the ambassador’s reply intensified debate in Australia over China’s role in the nation’s economy. Canberra hasn’t backed down. While insisting that it is not opposed to China’s success and prosperity, the government of Prime Minister Scott Morrison also insists that Beijing must respect international law and Australia’s sovereignty.

Undaunted, China in mid-November charged the Australian government with “poisoning bilateral relations” and presented a list of 14 demands that Canberra had to address to fix the relationship. Among the offending items were the call for an independent investigation into the origins of the COVID-19 outbreak, public statements in support of Taiwan and Hong Kong, banning Huawei from Australia’s 5G telecommunications network, blocking 10 Chinese investments in infrastructure, agriculture and animal husbandry, and even Australian government funding for “anti-China research” at the Australian Strategic Policy Institute (ASPI), a Canberra-based think tank. (Full disclosure: I attend ASPI conferences and it has published my work).

As Chinese diplomats handed over the dossier to Australian media, they warned, “China is angry. If you make China the enemy, China will be the enemy.” Chinese Foreign Ministry spokesman Zhao Lijian accused Australian officials of “repeated, wrong acts and remarks on issues concerning China’s core interests” and asked them to take “concrete actions to correct their mistakes.”

This blunt approach now goes by the name of “wolf warrior diplomacy,” and has assumed new prominence as China recovers more quickly than any other country from the COVID-19 pandemic. Chinese economic coercion isn’t new, however. South Korea was the target a few years ago after it defied Beijing and deployed the Terminal High Altitude Area Defense (THAAD) system to protect against North Korean missiles. Angered by Seoul’s refusal to bow to its demand, Beijing imposed tourist and consumer boycotts, and subjected South Korean companies operating in China to inspections that almost invariably resulted in fines or closures.

Japan too knows how China reacts when angry. The 2010 arrest of a Chinese fishing boat captain for operating in Japanese waters around the Senkaku Islands, then fleeing arrest and ramming Japan Coast Guard vessels, prompted one of the worst crises in Tokyo-Beijing relations in recent years. Among other measures, China suspended shipments of rare earths — critical to the manufacture of high-tech goods — to Japan.

In that case, as in the others, China disavowed any linkage between economic measures and politics. In 2010, the stoppages were first attributed to spontaneous actions by customs officials, then to a desire to reduce environmental damage caused by mining. Boycotts of South Korea following the THAAD dispute were the product of patriotic fervor among ordinary Chinese. Now, Chinese officials insist that Australian trade is held up for temporary technical reasons or, in the case of wine, illegal subsidies.

More interesting than the sanctions has been the response, which has been consistent: Chinese tactics triggered a backlash, undermining China’s interests. Yes, in 2010, Japan released the fishing boat captain, but the incident also engendered something close to permanent suspicion of China among the Japanese public. It also prompted Tokyo and other Western governments to reduce their dependence on Chinese rare earths exports. The 2017 boycott erased goodwill for China among the South Korean public, and Australian views of China are plummeting: In a Pew Global Attitudes Survey taken last summer, 81% of Australian respondents held unfavorable views of China, up from 57% in 2019, and 32% in 2017.

Beijing should be most worried about the increasingly widespread acceptance among key trading and diplomatic partners that interdependence with China is dangerous because it leaves them vulnerable to political pressure. Akira Igata, a colleague who also serves as economic security advisor for the Inter-Parliamentary Alliance on China (IPAC), argues that countries must “address the structural issue at hand — reducing strategic dependence on China. China has a clear track record of engaging in economic coercion by exploiting economic dependence. Just as regions prone to natural disasters are considered to be potential risks, conducting business with actors prone to using politically-motivated economic coercion should also be considered a substantial risk.”

Acknowledging that danger is a first step. More alarming still for China should be the growing call for coordination to reduce that vulnerability. Tom Tugendhat, chairman of the foreign policy committee in Britain’s House of Commons, called on his country to “stand side by side” with Australia, and urged other countries to join together to prevent Beijing’s “divide and conquer” tactics against countries that defy it.

The Wall Street Journal reports that the Trump administration is considering a plan to create an informal alliance of countries that would, when China attempts economic coercion, respond by purchasing the target country’s goods or provide compensation. They might also retaliate with tariffs on Chinese exports to offset the losses. (If you just heard a popping noise that was me patting myself on the back: I suggested a similar “insurance arrangement” in a column a few months ago for just this type of pressure.)

The Trump administration may be on its last legs, but an emphasis on coordinated action by democracies looks to be a pillar of the Biden administration’s foreign policy. It’s a topic that I will revisit in future articles.

Regional governments must be more strategic in their national economic statecraft. Japan is making progress, but it is only beginning the work. Policy makers are still surveying the landscape and mostly focusing on defensive measures for the domestic economy. The Japanese government was going to produce a National Economic Statecraft strategy earlier this year but that is now reportedly going to be a pillar of the revised National Security Strategy that is scheduled to be released this month. A key lesson is that international cooperation and coordination is just as if not more important given China’s size and position in the regional and global economy. Australia is the proverbial canary in the coal mine — and wolves eat canaries in one bite.

Brad Glosserman is deputy director of and visiting professor at the Center for Rule Making Strategies at Tama University as well as senior advisor (nonresident) at Pacific Forum. He is the author of "Peak Japan: The End of Great Ambitions" (Georgetown University Press, 2019).