The Australia-China Barley Spat

April saw some slight movement on Australia and China’s dispute over barely. Since 2020, China has placed an 80.5 percent tariff on all Australian barely, which effectively blocked exports to the Chinese market. In 2018-2019 this market was worth around $600 million to Australian producers. This is obviously something Australia has been annoyed by, and it launched a dispute with China at the World Trade Organization (WTO).

However, recently Australia has also sought to rectify the situation bilaterally. This led to a small shift in Beijing’s position. What it offered Canberra wasn’t much – an agreement to undertake a review of the tariff over a three month period – but it is symbolic of how the wider bilateral relationship is taking shape. Amid a gradual thawing of relations, Beijing is offering small concessions toward normalization.

As an act of good faith, Australia has agreed to temporarily suspend its action against China through the WTO for this three-month period. Canberra has signaled, however, that if the duty isn’t lifted at the end of the review period, Australia will resume the dispute through the WTO.

Since the election of the Labor government in May 2022, China has been slowly taking Australia out of the diplomatic freezer. Unlike the previous few years, where Beijing refused to even answer the phone if Australia called, there have been a number of in-person bilateral meetings between the countries’ respective foreign and defense ministers, as well as a brief meeting between Prime Minister Anthony Albanese and President Xi Jinping on the sidelines of the G-20 summit.

Under Labor, the Australian government has pursued a quieter diplomatic strategy toward Beijing. The Labor government has maintained a firm commitment to Australia’s interests, but avoided the oftentimes bellicose rhetoric of the previous government. The standard line of the government is that it “will cooperate with China where we can and disagree where we must.”

The new approach is meant to stabilize the relationship, rather than reset it completely, and certainly is not designed to reshape the relationship on China’s terms. Beijing has insisted that it is up to Australia to create a “better atmosphere,” yet to Australian ears this sounds like submission to Beijing’s desires. This is something that Australia is unwilling to do, but the government has found a path that makes the relationship functional without scratching Beijing’s thin skin.

Canberra’s primary objective is to restore a normalized trading relationship, and this goes hand-in-hand with a diplomatically functional relationship. However, both these things rely on at least a semblance of a shared worldview, which may not be possible. Australia has a firm commitment to the mutually beneficial rules and norms that smaller countries need to negotiate the world with confidence, while China sees trade as a potential tool to create leverage or to punish states that Beijing feels have offended it.

But the other side of the punishment coin is the offer of “rewards” for countries that avoid offending Beijing’s sensibilities. This is where China currently is with Australian barley. A small reward has been offered – a review of the tariff with the potential for it to be removed – for less strident language from Canberra about Beijing’s behavior. The hope is that Australia will see such a reward as an incentive to be more pliable to China’s desires.

However, there may be one other motivating factor in Beijing’s move to review the barley tariff, one that is outside this game of punishment and rewards: the realization that Australia refuses to play this game. It’s possible that Beijing has decided to move toward respecting this reality. Beijing has seen how far it can push Australia, whether Canberra will submit to the Communist Party’s sense of hierarchical order. This clearly hasn’t worked.

While less strident in response than its predecessor, the new Australian government’s shift in language toward China has been designed to be sober rather than pliant. However, this is also partially driven by domestic political calculations. The former Liberal/National coalition government fared incredibly poorly in electorates with large Chinese Australian populations due to a sense that it failed to distinguish between the Chinese people and the Chinese Communist Party. The Labor Party has been able to make this distinction much clearer, and reaped the electoral benefits of Chinese Australians feeling less attacked.

If, after their review, Beijing agrees to remove the tariff on barley, it will be a sign that Canberra’s strategy of seeking a bilateral negotiation of disputes outside of the WTO can work. A similar approach might work then on Australian wine, which is also effectively blocked from the Chinese market due to punitive tariffs. This may also signal that China could be ready to stop seeing economic coercion as a diplomatic tool.