It’s a little awkward, but in fact, a reality in this day and age that bilateral trade between two countries who view each other as somewhat adversarial, can co-exist economically. As the world turns, so does global trade, take Australia and China for the shining example….as trade between the two remains strong, despite Australia planning to put new nuclear subs in the water per AUKUS to keep China in check, as well as continue to show up at the QUAD meetings, to keep China in check, among various other military drills with the U.S. and U.K to keep China in check. Yes, it’s all about keeping China in check as they build military installations on the various islands in the S. China sea. As 2/3rds of the world’s trade continues to flow through the South China sea, and China continues to claim the majority of it, there is of course the potential for much more than military skirmishes in the air, at sea, and soon to be, on land, if China decides to pull the trigger early on the invasion of Taiwan. Regarding the scenario of just how that will play out, I think a Chinese naval blockade around the island would be the first move on the chess board, prohibiting Taiwan from daily trade. The U,S, and U.K have plans for this scenario, which would include Canada, Japan, S. Korea, the Philippines, and of course Australia. Global trade will be disrupted, but there is much more at stake. Beijing just declined a meeting with the U.S. military brass to discuss the ongoing tensions.

Australia is attempting to mend fences with China, and there will be an upcoming meeting in Beijing. The adversarial part of the relationship actually goes back a couple of years when Australia’s governing body blamed China for the covid outbreak, as did several other countries, but this one blindsided Beijing. China subsequently blocked Australian barley in May 2020 by imposing an 80% tariff. (now being resolved)  It was however turned into a tit-for-tat in retaliation for two years, (including a 200% tariff on wines imported from Australia) harsh words spoken, but here we are, two years later, and trade between the two countries continues to flow. Regarding the basics, China is Australia’s largest two-way trading partner representing approximately one-third of the nation’s international trade. Australia represents China’s fifth biggest source of imports and 10th largest export market. Despite the tensions, China remained Australia’s largest export destination as the government in Beijing kept the lucrative iron ore trade moving.

When looking at China’s top trading partner, yes geopolitical tension and ongoing trade with the U.S. is a prime example, but an entirely separate article, as the relationship has hit absolute rock bottom in my opinion. Maybe Australia can lead the way in calming things, but there is no question as to whose side they are on diplomatically, and Beijing knows that will not change, so it comes down to the economics, keeping things moving, and recognizing that all of the photo ops with the smiles and handshakes are superficial at best.

So where are the two in the economics of the relationship? Data released by the General Administration of Customs (GAC) showed that, in 2022, bilateral trade between the two countries reached US$220.91 billion, with Australia’s exports to China amounting to US$142.09 billion.

Per The China Briefing, China remains a primary export market for many Australian products, such as coal, iron ore, and wine. The top exports from Australia to China included iron ore (US$5.48 billion), petroleum gas (US$1.65 billion), other minerals (US$1.08 billion), gold (US$742 million), and wheat (US$214 million). No doubt, Australia is benefiting from Beijing’s life after COVID policy, which has reopened the borders. This is key to continued growth in trade between the two as China is the largest consumer of Australia’s tourism and education exports. In 2019, China accounted for 15.3 percent of Australia’s inbound tourism and 26 percent of total international student enrollment.

Permit me one of my usual digressions here. The ongoing aggression by Russia in Ukraine is also challenging many relationships, and it’s worth mentioning in line with the premise of this article that Ukraine exports of wheat are permitted in the middle of a war. It’s no secret that China would have preferred an early Russian victory, but that is not in the cards for Putin, and never really was. Solidarity being the key operative word, Australia is in partnership with the U.S. and U.K. regarding assistance to Ukraine, and Beijing at some point has to take a step back recalculate and declare exactly where it stands with Russia at this particular time. Are they still in the “no limits” partnership announced during the past winter  Olympics, pre-invasion? 

If one could be the proverbial “fly on the wall” during the upcoming meeting between Beijing and their Australian counterparts, would you hear the discussion divert from strengthening trade to the tensions that will escalate when the first nuclear sub is launched by Australia into the S. China sea,….let’s say by 2025, as this is a huge investment. Pertaining to the question Beijing will pose as to why they feel that this escalation is necessary, the answer is quite obvious, although Beijing will disagree. With China continuing to go down a path of aggression, economics in play, I would think that Australia would start looking for other options in trade, mainly with several of its Asian partners, but as mentioned in the title, geopolitical tensions often do not displace the economics of trade. Keep in mind, China buys more of Australia’s agricultural produce than any other country. ChAFTA (The Foreign Trade Agreement) provides Australia with an advantage over other major agricultural competitors, including the United States, Canada, and the European Union. Beijing will of course bring this up in the meeting as well. Does Australia brush it off and consider options?  I do not think this is possible since Australia exports more resources to China than anywhere else on the planet, as well as  imports more goods from China than anywhere else. A worst-case scenario could prove many wrong, myself included.

In the bigger picture, as mentioned in a recent article by CNN’s Fareed Zakaria, emerging markets are looking for options at this time to the United States. Xi Jinping has been on tour shoring up relationships as being the “go-to” for sourcing. This is the backbone of China’s importance to world trade, especially since the product tag “Made in China” comes with a good possibility of penalty when being imported into countries like the U.S. via Section 301 tariffs, antidumping and countervailing duties, Section 232 duties, Forced Labor in the supply chain, and of course, the high-tech ban.

Autocracy vs democracy, geopolitics, and world trade. I am curious to see how things may play out if/when Australia puts its first nuclear sub via AUKUS into the S. China Sea, pre-Taiwan invasion of course, because if/when that happens, we all pretty much know where the lines are drawn.