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Winning Over Down Under

Winning Over Down Under

It will take a united front to defeat Beijing’s new version of diplomacy by economic coercion.

Charles Edel

Last month, in comments that did not get much notice in the United States but captured immediate attention throughout Asia, Kurt Campbell, President Biden’s Indo-Pacific Coordinator at the National Security Council, declared, “We are not going to leave Australia alone on the field.” This means that any improvement in U.S.-China relations will require China’s alleviating the economic and political pressure it has applied to Australia for the better part of the past year.

Campbell’s clear statement of U.S. support for its ally represents a significant and strategically important shift in the response to China’s efforts to divide and conquer. By conditioning the improvement of relations between the two superpowers on China’s treatment of not only the United States but its closest allies, America recognizes the need to build a united front against Chinese economic and political coercion.

Over the past year, Beijing has taken aim at an array of Australian goods and services. In May, soon after Australia called for an independent international investigation into the origins of the coronavirus pandemic and began to strengthen its foreign investment controls, Beijing angrily imposed and then escalated trade sanctions. These included punitive measures to curtail imports of Australian barley, coal, cotton, timber, copper ore, meat, lobster, and wine. Since Australia sends nearly 40 percent of its exports to China, this series of actions was clearly meant to send the message to Australia that its economy was at risk if it continued to take political actions displeasing to Beijing.

The Chinese government also encouraged popular boycotts of certain Australian products, increased tariffs and import restrictions on Australian goods, filed nuisance complaints with multilateral organizations, heightened investigations of Australian imports, and carried out deliberate slowdowns affecting these imports in Chinese ports. Sometimes the policies were explicit and targeted specific sectors; sometimes they were implicit and arrived with warnings that the “Chinese public is frustrated, dismayed and disappointed with what Australia is doing now.”

While the methods vary, the use of trade as a tool of economic coercion and political intimidation is clear. The Chinese Communist Party uses the promise of access to the China market as both an incentive and a deterrent to other countries.Recent studies have documented the growth in both instances of Chinese coercive diplomacy and the expansion in the range of coercive economic measures taken against the United States and its allies. It is increasingly apparent that the Chinese government is using a deliberate set of policies to create a system in which Beijing’s preferences influence foreign and domestic policy decisions by other countries while shrinking their space for dissent.

This is the context surrounding China’s campaign to punish Australia through economic coercion. Now, nearly a full year into the campaign, the early data are in. The initial results by no means show a clear win for Beijing. Though Australian exports to China dropped by nearly AU$20 billion (US$15.4 billion), much of those losses has been offset by diversification to new buyers in other countries. Admittedly, the effects have been felt unevenly. While Australian wine and beef exports to China have dropped precipitously and not yet found replacement buyers, most other commodities targeted by Beijing—including coal, barley, copper, cotton, seafood, and timber—have found buyers in alternative markets.

With Beijing continuing to look for new products and industries to target, it is premature to judge the overall effect on Australia’s economy or the long-term implications of China’s strategy. Still, the initial data suggest that China’s campaign of economic coercion has had only mixed results in its impact on Australian businesses. Indeed, it has forced many of them, under pressure, to adapt and diversify. That’s undoubtedly good news: It suggests that moves to diversify away from China can work, although certain sectors will find it easier than others to manage the shift. Also, businesses will now be far more likely to understand the coercive and punitive actions China can inflict on other economies for non-commercial reasons and will include this contingency in their normal risk-management calculations.

Furthermore, while the Australian government, as well as its business community and academic institutions, previously had a wide range of views on China and Australian policy toward it, the blatant recent economic coercion, and the exposure of Chinese influence and intimidation in Australia, have significantly shifted Australian public opinion: China’s strong-arm tactics have caused a nosedive in the favorable perception of Beijing by the Australian public. Unfavorable views of China have skyrocketed, and an overwhelming majority (94%) of those surveyed want the government to reduce Australia’s economic dependence on China.

Allied governments can help educate the private sector in this regard and may be able to provide firms with incentives as they search for alternative markets. But as long as countries approach this challenge bilaterally, they are unlikely to make much headway. Beijing’s use of economic coercion toward nations, companies, and individuals around the world is unlikely to diminish, which will make it critical that governments work not just within their own countries to support efforts to diversify but also with one another to minimize the impact of Beijing’s tactics.

The Biden Administration’s initial moves on this front are encouraging as a sign of the beginnings of such an approach. It  should develop in partnership with its allies a joint statement of principles to guide their responses to economic coercion. Future success will depend on greater coordination among different countries’ economic policies, ranging from retaliatory sanctions to export controls. The likelihood of future success would also benefit from strengthening alternative supply chains, so as to build resilience in the event of both man-made and natural disruptions. Finally, the United States and its allies should consider establishing a public-private reserve fund to aid countries and entities targeted by Chinese economic coercion.

In the end, it will take a united front to defeat Beijing’s efforts to divide, conquer, and subdue.

Charles Edel is a senior fellow at the United States Studies Centre at the University of Sydney and a global fellow at the Wilson Center. He was previously a professor at the U.S. Naval War College and served on the U.S. secretary of state’s Policy Planning Staff.

AsiaChinaU.S. Foreign PolicyEconomicsPolicy Memo