Australia-China Relations: The Great Debate

The coronavirus pandemic of 2020 gave new meaning to the term annus horribilis, resulting in millions of deaths, countless suffering, endless lockdowns, and socioeconomic crises the world over. As the year progressed, Australia-China relations plummeted to new lows, making the “deep freeze” of recent years seem almost balmy. A significant trigger was Canberra’s push for an independent inquiry into the origins of the virus – one of the 14 “grievances” that have infuriated Beijing in recent years. Canberra was no more pleased by the growing number of Australian sectors targeted by Beijing: By the end of 2020, Chinese imports of goods including wine, lobster, sugar, coal, timber, barley, and copper ore had been subjected to a range of tariffs and other export controls, with projected losses of up to A$20 billion (US$15.2 billion) per year.

As these political and trade tensions rose, debates surrounding the bilateral relationship with China played out in an increasingly fractious way. There are five key issues about which there is little consensus, all requiring further clear-eyed, evidence-based analysis to ensure that Australia’s future looks brighter than 2020, not worse. 

Issue One:  Australia’s China Dependency – Is It Too Much? 

There is no doubt that the Australian economy is highly dependent on China, no matter how one measures it. Its “vulnerability” – the technical term for one country’s trade with another as a share of total trade – has increased considerably in the last two decades, and strikingly so compared with that of the United States, India, and Japan (seen as movements up the y-axis in Figure 1 below). Australia has also become much more “sensitive” to its trading links with China – that is, the changing value of its trade with China as a share of its own nominal GDP (a shift along the x-axis). Add to this its shrinking “relative economic power” (Australian GDP relative to China's GDP, seen by the size of the country bubbles), and it is clear that Australia is in a particularly precarious position when it comes to trade with China.