Trade
Australia must learn to navigate the economic realities of China relations
Author: James Laurenceson, UTS
Australian Treasurer Josh Frydenberg warned in September that Australia was on the ‘frontline’ of ‘strategic competition’ between the United States and China. ‘Exhibit A’ was the campaign of trade punishment that Beijing unleashed in May 2020 after it assessed that Canberra was collaborating with Washington to attack China’s interests. Smart responses are needed.
Frydenberg has emphasised the importance of forging ‘partnerships with like-minded countries’ and staying true to ‘core values’. While sensible in principle, economic realities must be considered. And as a new report by the Australia-China Relations Institute explains, these realities are being obscured by local analysis and commentary.
For starters, it’s inaccurate to frame Australia’s disrupted exports to China as part of a broader decoupling trend. One pundit has claimed that the global economy is becoming divided into two blocs — ‘one dominated by Western liberal-democracies competing against a Sino-led bloc populated by weaker developing nations and authoritarian states’.
While it’s true that trade has been falling as a percentage of China’s GDP since 2006, it remains significantly higher in China at 35 per cent than in the United States at 23 per cent. The value of two-way trade between China and every major region of the global economy continues to increase. From January–September 2021, two-way trade between China and Oceania increased by 36 per cent compared to the same period in 2019. China–North America trade rose by 33 per cent despite both Washington and Beijing imposing an average tariff of 20 per cent on each other’s goods. This underscores the deep economic complementarities between the United States and China.
In September, US Commerce Secretary Gina Raimondo made clear that the United States is not focused on decoupling with China and had ‘no interest in a cold war with China’. US Trade Representative Katherine Tai said her goal was ‘a kind of recoupling’. She planned to tackle ongoing US concerns through direct dialogue and negotiations with Chinese counterparts.
Meanwhile, Australian Trade Minister Dan Tehan has not been able to secure a phone call with Chinese counterparts since he took on his portfolio a year ago.
This leads to the second economic reality for Australia. Strategic friends can be fierce commercial rivals and will not set aside the opportunity to sell more to China out of solidarity with Australia.
Australia’s export of 12 disrupted goods to China slumped by a combined US$12.6 billion in 2021 compared to the same period in 2019. China’s total import values increased for seven of the 12 goods, with many other countries picking up the lost Australian sales. The most prominent among these was the United States, which saw its exports of the same goods leap by US$4.6 billion. Sales of these goods by Canada and New Zealand to China jumped by US$1.1 billion and US$786 million, respectively.
Third, for all the prominent voices in friendly capitals urging compatriots to step up their purchases of Australian ‘freedom’ and ‘democracy’ wine following Beijing’s prohibitive tariffs, trade data reveals that these calls have gone mostly unheeded. Australian bottled wine sales to China have collapsed by US$481 million or 98 per cent. This dragged down total bottled wine exports by 25 per cent. Increased US purchases compensated to the tune of just US$7.1 million.
It’s correct that the pain for commodities exporters has been mitigated by global markets re-directing sales elsewhere. But with more coal now going to Turkey (up by US$191 million), barley to Saudi Arabia (up by US$520 million) and cotton to Vietnam (up by US$351 million), it’s again clear that countries that share ‘core values’ with Australia haven’t suddenly replaced China as a driver of prosperity.
Finally, triumphalist assertions that a trade decoupling from China won’t hurt too much are premature. The problem with claims that the costs of decoupling are lower than assumed is that the case has not been made that a significant decoupling has even occurred. While trade in some goods has fallen, in the 2021 September quarter, the total value of Australia’s goods exports to China was 72 per cent higher than the 2020 April quarter, immediately before Beijing’s trade strikes began. Goods imports from China were 62 per cent higher. Many big-ticket items like liquefied natural gas continue to be traded as before.
None of these economic realities excuse or obscure…
Trade
Self-Reliance and Openness: Core Principles of China’s Third Plenary Session
The Third Plenum communique from the CCP indicates a prioritization of stability and compromise in response to China’s economic challenges. It highlights the concept of Chinese-style modernization and establishes political guidelines for balancing regulation and market forces.
The CCP’s Third Plenum communique signals a focus on stability and compromise in the face of China’s economic challenges. It emphasises Chinese-style modernisation and sets political directions for balancing regulation and market forces. While not as groundbreaking as previous plenums, it acknowledges the importance of market mechanisms and technological self-reliance, aiming to address issues like high youth unemployment and private sector uncertainty. The communique seeks to navigate the complexities of global competition and domestic innovation, potentially reshaping global supply chains and trade dynamics. Overall, it presents a pragmatic blueprint for China’s economic future.
Source : Self-reliance and openness central pillars of China’s Third Plenum | East Asia Forum
Trade
Trade Prevails Over Political Persuasions in China-Germany Relations
China and Germany maintain a strong bilateral relationship, rooted in economic cooperation despite ideological differences. Recent visits and agreements focus on expanding trade and addressing mutual concerns, navigating challenges while nurturing ties.
Evolving Bilateral Ties
China and Germany share a strong bilateral relationship, rooted in history since 1972. This connection has seen moments of cooperation intertwined with periods of tension. German Chancellor Olaf Scholz’s April 2024 visit underscores Germany’s commitment to fostering this partnership, reflecting a mutual interest in maintaining economic ties despite ideological differences.
Economic Pragmatism
As the second and third largest global economies, China and Germany’s economic interdependence is crucial. Germany emerged as China’s primary trading partner in 2023, with trade values reaching €254.4 billion (US$280 billion). In response to global scrutiny, Germany has taken a balanced approach, emphasizing economic stability over political discord. This was evident during Scholz’s prior visit in November 2022, where his diplomatic tone contrasted with broader EU sentiments.
Facing Challenges Together
Despite increasing public skepticism in Germany regarding China’s global influence and human rights issues, both nations continue to seek common ground. Their October 2023 Joint Statement highlights intentions to pursue cooperation in areas like carbon neutrality and open markets. To navigate these complex terrains, Germany can utilize its institutional frameworks to enhance dialogue, while also considering supply chain diversification to reduce dependency on China. The intertwining nature of their economies suggests that, despite challenges, both countries will continue to prioritize their substantial trade relations.
Source : Trade trumps political persuasions in China–Germany relations
Trade
Fixing fragmentation in the settlement of international trade disputes
Fragmentation in global trade due to the lack of development in multilateral trade rules at the WTO has led to an increase in FTAs. The Appellate Body impasse has further exacerbated fragmentation, requiring a multilateral approach for reform.
Fragmentation in Global Trade
Fragmentation in global trade is not new. With the slow development of multilateral trade rules at the World Trade Organization (WTO), governments have turned to free trade agreements (FTAs). As of 2023, almost 600 bilateral and regional trade agreements have been notified to the WTO, leading to growing fragmentation in trade rules, business activities, and international relations. But until recently, trade dispute settlements have predominantly remained within the WTO.
Challenges with WTO Dispute Settlement
The demise of the Appellate Body increased fragmentation in both the interpretation and enforcement of trade law. A small number of WTO Members created the Multi-Party Interim Appeal Arbitration Arrangement (MPIA) as a temporary solution, but in its current form, it cannot properly address fragmentation. Since its creation in 2020, the MPIA has only attracted 26 parties, and its rulings have not been consistent with previous decisions made by the Appellate Body, rendering WTO case law increasingly fragmented.
The Path Forward for Global Trade
Maintaining the integrity and predictability of the global trading system while reducing fragmentation requires restoring the WTO’s authority. At the 12th WTO Ministerial Conference in 2022, governments agreed to re-establish a functional dispute settlement system by 2024. Reaching a consensus will be difficult, and negotiations will take time. A critical mass-based, open plurilateral approach provides a viable alternative way to reform the appellate mechanism, as WTO Members are committed to reforming the dispute settlement system.
Source : Fixing fragmentation in the settlement of international trade disputes
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