It’s official. The trade wars with China are coming to an end. Soon, it’ll be business as usual.
At least, that was the official spin from last week after Beijing suddenly reversed course after years of false claims and coercion aimed at bringing Canberra to heel.
If all goes well, China may soon allow Australian barley back into the country to help brew beer. Wine too may be back on the table of China’s well heeled in the not too distant future. Earlier this year, Beijing also jettisoned the restrictions on Australian coal.
There is, however, a slightly more nuanced interpretation of the events of the past fortnight.
Perhaps it was a mere coincidence that last week’s trade breakthrough was accompanied by a show of force over Taiwan after the US House Speaker Kevin McCarthy met with Taiwan leader President Tsai Ing-wen in Washington.
For three days, the People’s Liberation Army conducted exercises around Taiwan involving more than 200 flights by Chinese warplanes in “waves of simulated strikes”, according to state broadcaster CCTV, as the aircraft carrier Shandong circled the island.
For much of the past year, as China has stepped up the pressure to reunite Taiwan, the debate over Australia’s position has become ever more polarised.
Culturally, philosophically and militarily aligned with Western democracies we, however, reside within the orbit of Beijing and derive much of our income from China, leading many to argue we should simply back away from any outbreak of hostilities.
Unfortunately, unlike France’s Emanuel Macron who advocated a neutral stance for his European Union neighbours should China take Taiwan by force, that simply isn’t an option here.
China relies on Australia for that most fundamental of war materials, iron ore.
Should China attack Taiwan, Washington’s first move most likely will be to request, or rather demand, an immediate suspension of the trade. Refusing, in essence, would mean that we would be supporting China in a conflict with America.
As a result, Australia will be amongst the first to declare a position.
Beijing’s trade offensive backfires
For the past three years, a furious Beijing has attempted to punish Australia with a series of bans on almost every major export.
Initially angered by the Australian decision to ban Huawei and ZTE from providing equipment and componentry for the National Broadband Network, its annoyance turned to anger after former prime minister Scott Morrison called for an inquiry into the origins of the COVID-19 virus.
The only commodities not under threat were iron ore and natural gas. And the only reason iron was cut out of the retaliation was that the key steel making ingredient is vital to a Chinese economy addicted to construction, that can’t be sourced in that kind of volume and quality anywhere else.
In addition to coal, everything from timber to lobsters was banned.
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However, the strategy backfired.
With critical shortages of coal two years ago, much of regional China faced crippling blackouts during one of the harshest winters on record.
Like most fungible commodities, Australian exporters simply moved to other markets as India, Japan and South Korea picked up the slack.
Throughout it all, China remained our biggest trading partner, primarily because iron ore prices have remained strong.
But while total Australian exports grew 29 per cent in 2021/22, our shipments to China only increased by 2 per cent.
Exports to Japan more than doubled while South Korea and India lifted their purchases by around 72 per cent each.
With the World Trade Organisation investigating the China bans following complaints from Australia, there clearly was an imperative to back off before suffering a humiliating adverse ruling.
Like-minded, like sure
The timing couldn’t have been more curious.
Just as we were apparently thawing the icy relationship with China, much to the horror of the business community we appeared to be banning China from any involvement in the development of new mines involving “critical minerals”.
These are minerals vital for the new economy and decarbonisation. It just so happens they also are important ingredients for aeronautics, space and defence.
In a speech to the Australian Strategic Policy Institute’s Darwin Dialogue last week, Resources Minister Madeleine King welcomed foreign investors to take part in developing our new mines, sort of.
“Like-minded partners can build new, diverse, resilient and sustainable supply chains as part of a global hedge against concentration,” she said.
Like-minded. Given the recent ructions, it’d be a safe bet to assume that it would seem China and probably Russia have been ruled out as investors.
Her speech was very much in keeping with the global division on the issue. China is threatening a ban on the export of rare earth metals in retaliation to Washington’s recent restrictions on the export of high end semi-conductors to China.
China dominates the production and trade of rare earths which are crucial to everything from the production of wind turbines to smart phones and for years the US has attempted to find diversified sources.
As Ms King told last week’s forum: “Market concentration leads to fragility, volatility and unreliability of key minerals and rare earths.
“This creates a strategic challenge for Australia, and for our allies,” she said.
Could we play the peace maker?
For all the anxiety over whether we will be drawn into a military showdown and the impact that may have on our economy, our dominance of the iron ore trade may just provide the circuit breaker.
Without raw materials, China’s economy would grind to a halt while its ability to fight a conventional war would be severely hampered.
Those dynamics may change if China manages to bring the giant Simandou project online in Guinea, West Africa.
Right now, Beijing is going all out to construct the mine, rail links and port facilities in an effort to wean itself off its reliance on Australia.
And there in the front line helping the effort is Rio Tinto which has a major interest in the project.
While it’s not widely talked about, Rio Tinto’s biggest shareholder is a Chinese State Owned Enterprise called Chinalco. It indirectly owns about 11.3 per cent of the mining giant but has no control over the operations.
It could have been a very different story. At the height of the Global Financial Crisis, Chinalco almost clinched control of the company and its mines but was thwarted at the last minute by a BHP proposal to merge its Pilbara operations.
Beijing is hopeful the Simandou project will be up and running by 2025 although it was scheduled to be in full production more than a decade ago. Coups, corruption and ongoing court cases have derailed the project on numerous occasions.
While it remains in limbo, or construction, China will remain dependent upon Australia. And that may just provide some welcome breathing space in an increasingly tense world of geopolitical instability.