Trade
Learning the right lessons from Chinese sanctions on Australian imports
Author: Shiro Armstrong, ANU
From May 2020 Beijing blocked the import of roughly a dozen Australian goods for which China was the major market, cutting imports worth around AU$20 billion (US$13.4 billion) annually. The deteriorating political relationship between Canberra and Beijing was the proximate cause but a trade deal between Beijing and Washington involving increased Chinese imports of US agricultural and other goods was also a factor.
Such large disruptions to trade are costly and threaten economic security. But retreat from openness and economic engagement is not the answer — that’s a pathway to a poorer and much less secure world.
Australia’s exports to China remained steady in 2020 and grew by 14 per cent in 2021 and 6 per cent in 2022, all while the global economy suffered from COVID-19 lockdowns and economic downturns. Australian exports of iron ore, which could not be readily sourced by China from elsewhere, and the rapid growth of other commodities like lithium exports, led the way. China accounted for over 40 per cent of Australian goods exports during that time and helped Australia weather the economic effects of the COVID-19 pandemic.
Australia is no stranger to having one country dominate its international trade shares. In the past Japan, the United States and the United Kingdom have accounted for around as much as China does today. This geographic specialisation is a sign of Australian success in utilising its economic endowments and taking advantage of opportunities internationally. Australia has put in place institutions and economic policy settings to manage these highly interdependent economic relationships and successfully dealt with occasional shocks in their fortunes.
Chinese trade sanctions caused Australian exporters — especially of wine and lobster — huge losses. But most exporters quickly found other markets as Chinese imports of barley, coal and other commodities did not slow and opened up other demand. Flexible markets in Australia helped but the crucial external source of resilience was an open multilateral trading system which ensures that trading options remain open. Contestable markets crowd out the effects of weaponised trade but there are adjustment and political costs.
Australian exporters found other markets mainly due to a multilateral trading system which ensures that trading options remain open. Neither exporters nor the Australian government knew exactly where those markets would be ahead of the event. The redirection of trade was led by market opportunities. At the centre of that system is the WTO, which despite its weaknesses, holds together the trading system with a patchwork of WTO-plus free trade agreements built around it.
Two dozen WTO members, including China and Australia, have signed onto the Multi-Party Interim Appeal Arbitration Arrangement so that WTO rules are enforceable even while the United States holds the system hostage with its veto of the appointment of arbitration judges. Australia has cases against China in the WTO that will be enforceable through China’s commitment to the MPIA. Japan has also joined, a major development that signals Japanese commitment to take a lead on international economic rules.
As the world’s largest trader, China has a huge stake in the existing multilateral trading system. China’s non-observance of the spirit of multilateral trade rules, like that of the United States and Europe, and its gaming of the system are not reasons to give up on the WTO. Chinese efforts at economic coercion have almost entirely failed and in every case its actions have backfired economically or politically.
It is possible to find ways to mitigate and diffuse trade risks by deepening involvement and strengthening rules, rather than by avoiding engagement. Economic engagement builds national wealth and power — and when combined with multilateral rules, broadens the range of strategic policy options available to national policymakers.
A China that is much less integrated into the global economy is one with far fewer political constraints and thus is much more of a security risk.
Russia’s strategic use of gas supplies against Europe is sometimes cited as a counterpoint to the argument for interdependence. But Russia was not integrated into European supply chains and European energy dependence on Russia is qualitatively different from economic interdependence in East Asia. Interdependence underpinned by multilateralism effectively diffuses risks.
Nowhere is the power of multilateralism understood better, and is it exercised…
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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