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Chinese-Australian trade tensions: Experts explain economic and legal impacts

Tensions between China and Australia are steadily increasing as the Chinese government continue to stop Australian imports. This is said to be due to Prime Minister Scott Morrison calling for an inquiry into the origins of COVID-19.

China has threatened to slap major tariffs on many Australian industries, possible resulting in a $6 billion blow to the Australian economy. The imports include lobsters, wine, sugar, coal, timber, wool, barley and copper.

News that China is blocking the products came from China’s newspaper The Global Times.

Another local media outlet, China Daily, warned Australia would “pay tremendously” if it continued antagonising China.

“China is Australia’s largest trade partner and all of the investigations so far only cover a small part of the imports from Australia,” the paper wrote.

“If Canberra continues to go out of its way to be inimical to China, its choosing sides will be a decision Australia will come to regret as its economy will only suffer further pain.”

Currently, Agriculture Minister David Littleproud is seeking clarification from Beijing and encouraging exporters to consider sending goods to other markets.

“We are saying to our exporters, you should spread your risk,” Mr Littleproud told 4BC radio.

Mr Littleproud also warned China of the risk to both economies if they continue to inflict the bans.

“If you want to play by the rules, everyone will play nicely,” he said in a message directed to China.

“But if you don’t, then obviously there’s a greater risk, even for our exporters, and they need to take that into account if they’re going to send product there, and they may ask for a higher price for that commodity.”

“We need China, China needs us”

While the Australian government attempt to sooth the relationship between the two countries, some academics are saying the bans will be temporary as China relies heavily on Australian imports.

Tim Harcourt, J.W.Nevile Fellow in Economics at the UNSW Business School, has said the bans will not be long term, as “China are just trying to annoy us.”

“I don’t think they really want to upset the relationship,” he said. “China really needs Australia, as we need China.”

“They’re changing from being a nation of shippers to a nation of shoppers. They’ve got to pull the middle class out of poverty. They have got to get over the coronavirus just like everyone else.

“Because of these reasons, they don’t want upset that fundamental relationship, but they’re obviously a bit defensive and upset about COVID, and we can see this with how they’ve handled the inquiry.

“The best form of defence is attack, and we can see that they’re feeling a bit defensive. They’ve picked lobsters, barley and beef to annoyingly create a hold up.”

“In the long term, things will stabilise. We’re gonna have a rocky road, because we’ve got very different systems and different values, but it will all eventually stabilise.”

The Australian government said it reserves its right to challenge the tariffs via the World Trade Organization and it is understood to have raised its concerns at a standard WTO committee meeting last week.

Innes Willox, the chief executive of the Australian Industry Group, said businesses would prefer Australia to have strong high-level connections with China, which accounts for 33 per cent of Australia’s total exports, but “when talks break down we need to rely on the independent umpire, the WTO”.

“China and Australia have long been united in advocating for the multilateral trading system and now might be the time to take our disagreements to that forum,” he said.

However, while the World Trade Organisation governs trade between China and Australia, some academics are saying the laws aren’t enough to address trade tensions, and new agreements need to be put in place to prevent further bans.

Professor Heng Wang, co-director of UNSW Law’s Herbert Smith Freehills China International Business and Economic Law (CIBEL) Centre, said it will be difficult for the dispute to be addressed, because “the current rules in place just aren’t enough.”

“We need to work on the new agreements, particularly large agreements like RCEP, to ensure impartial adjudication and that the rules are set up to address a post-COVID world.”

The Regional Comprehensive Economic Partnership (RCEP) is a large trade agreement which is currently in negotiation across over 10 member states with the intention of being signed by the end of 2020.

Professor Wang says the RCEP should make room for rules that address current global dynamics, as countries trade in the wake of the COVID-19 pandemic.

“The RCEP should incorporate new rules to deal with our changing world. In a post COVID-19 world we are likely to see more unilateralism and many more trade tensions. These things should be addressed in the RCEP, because current trading rules have a limited effect.”

The impact of the US election

With the news of Joe Biden taking the US presidency on November 7, Australians may be able to look forward to an “open and stable world” as the Mr Biden attempts to heal the US’s relationship with China.

“It’s gonna help a bit, because I think Biden’s going to have more respect for international institutions,” said Mr Harcourt.

“He wants to get re-elected, and his mandate is clearly to look after the manufacturing jobs in America. So, I wouldn’t say Biden’s going to be a free trader, but he will be a little bit more engaged with the world.”

“This will probably better for us as Australia will benefit from an open and stable world.”

However, others say that the Biden presidency may not be positive news for Australia, as if US chooses to strengthen their relationship with China, China may turn to the US for imports.

“The risk for Australia until now has been that we have been caught up as collateral damage in the US-China trade dispute,” said Mr Willox of the Ai Group.

“The future risk is that China may seek to substitute Australian exports in key sectors with goods from the US in an effort to reset their economic relationship.”

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Ellie Dudley

Ellie Dudley

Ellie Dudley is a journalist at Dynamic Business with a background in the startup space and current affairs reporting. She has a specific interest in foreign investment and the Australian economy.

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