Chinese Overreach and Australia.

• Author: Lee, John

If Thucydides' observation that the strong do what they can and the weak suffer what they must is true, then American allies are presumably in strife given that a belligerent Chinese Communist Party is increasingly resorting to coercive economic approaches to bludgeon smaller nations into submission. China's gross domestic product (GDP) in nominal terms is about 60 percent larger than the combined GDPS of America's five treaty allies in Asia--Japan, South Korea, Thailand, the Philippines, and Australia. Beijing spends more on defense each year than the rest of Asia and Oceania.

At the same time, China, in targeting Australia, is picking on a country with a population of under twenty-six million and with whom it has no territorial or historical disputes. What is Beijing trying to achieve and will it eventually succeed? Or will Aussie defiance harden the resolve of other American allies and partners to withstand Chinese coercion in the future?

There is some way to go before we know how it will pan out. But there are some signs that we are witnessing Chinese hubris and overreach rather than Australian contumacy or pigheadedness. Beijing's malice is proving that the Trump and Biden administrations got it right in nominating China as the comprehensive challenge of their times. Importantly, Australia is showing that smaller nations still have agency and options and that it is no easy matter for China to cow liberal democracies into subservience.

In a competition to choose the American ally most susceptible to Chinese economic coercion, Australia would be the leading candidate. Prior to the COVID-19 pandemic, Australia enjoyed twenty-eight years of consecutive economic growth, a record among developed economies. During turbulent economic events such as the bursting of the dot-com bubble earlier this century and the 2007-2008 Global Financial Crisis, its economy was buffeted by increasing exports to China and ever improving terms-of-trade (i.e., ratio of export prices to import prices.) By the end of 2020, more than one-third of every Australian export dollar was earned from the Chinese market. This meant Australia had become the most China-reliant advanced economy in the world from a trading perspective.

Digging deeper only emphasizes Australia's dependency. It is primarily a commodities exporter of minerals, energy, and agricultural products. In 2020, iron ore, coal, and natural gas made up almost 44 percent of all exports with most of these commodities being sold to China. With respect to Australian iron ore, which is the country's top export earner, about 80 percent of earnings come from China. Even when it comes to leading export services such as education and tourism--8 percent and 5 percent respectively of total exports--Chinese students and visitors are the largest revenue source for these two industries.

The assumed Australian economic vulnerability to Chinese coercion also stems from the fact that while Beijing is Australia's largest trading partner by some distance, the reverse is not true. While more than one-quarter of the value of Australian two-way trade--imports and exports--is with China, the latter's two-way trade with Australia is less than 2 percent of its total trade. The tyranny of these numbers suggests Beijing has leverage: trade with China seems to matter much more to Australia than the reverse.

Leverage is one thing. Willingness to use it is another In this regard, Beijing has form. According to a count by the Australian Strategic Policy Institute, China has used "coercive diplomacy" more than 150 times against foreign governments and firms since 2010. These mainly involve threatening or carrying out investment and trade restrictions in addition to encouraging popular boycotts. The restricting of rare earth exports to Japan in 2010 following incidents in the East China Sea and the targeting of South Korean firms in 2016 due to Seoul's decision to participate in the American-led Terminal High Altitude Area Defense (THAAD) anti-missile program are well known.

However, more than half of the instances of Chinese coercion have occurred over the past two years. And most of these instances are being directed against Australia. Since 2018, China has refused to accept cabinet-level meetings with Australian counterparts, and for the past year is refusing to even accept phone calls. Since 2020, Beijing has imposed punitive measures against Australian barley, coal, timber, beef, cotton, sugar, copper, wool, lobsters, wine, and liquefied natural gas. These export sectors bring in around $15 billion a year from China. State authorities have issued arbitrary travel and...