After accusations from the Australian government regarding China’s mismanagement of the COVID outbreak, China launched an economic coercion campaign against Australia. Communist Party leaders proudly believed they held overwhelming leverage. The economies of the two countries, with resource-rich Australia and commodity-hungry China, were complementary and intertwined. China imposed a A$24 billion (16 billion USD) blow to Australia by severely restricting supplies of lumber, coal, lobsters, barley, and wine. They cited exaggerated concerns about trade practices and pest infestations. However, Australia did not surrender, and after three years of Chinese bullying, Australia has made a remarkable recovery.

The Punch

Australia’s exports initially suffered due to the restrictions, but then rebounded, culminating in the country’s largest-ever trade surplus, which accounted for more than 7% of GDP last year. Additionally, the trade restrictions imposed when Australia’s then-conservative government dared to request an investigation into the origins of Covid-19 are being lifted.

Bouncing Back

Fortunately for Australia, the two economies were strongly interconnected, which meant that China’s firms also experienced considerable hardship from the imposed limits. Furthermore, certain commodities, such as Australian iron ore, were so challenging to replace that China opted not to target them. Many of Australia’s struggling exporters managed to find new markets.

Following China’s imposition of an 80% tax on Australian barley, Australian farmers marketed it to South-East Asian countries. Other crops were also cultivated, while Chinese brewers had to obtain inferior barley from other nations. When China halted imports of Australian coal, it had to increase purchases from Russia and Indonesia. Since India and Japan were facing shortages, Australia sold coal to them. Additionally, rising global prices resulted in substantial wealth for Australian miners.

Australia also benefited from China’s desire to join the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), a vast regional trade agreement. As a CPTPP member, Australia can prevent China from joining. Consequently, Australia made it clear that no accession talks could take place as long as China violated economic laws and pre-existing free-trade agreements with Australia.

Furthermore, China’s bullying prompted both previous and current Australian governments to strengthen Australia’s security policy ties with the United States through AUKUS, a trilateral submarine-building pact involving Britain, and adopt a deterrent policy. Australia is also making diplomatic efforts to counter China’s Pacific influence. In this regard, trade embargoes have had unintended consequences.

Implications for China

Despite Australia’s significant success in navigating around China’s bullying, China’s position as a market and geopolitical superpower cannot be ignored. It is understandable that China still accounts for almost a third of Australia’s total goods and services exports. Australian ministers state that blocking trade with China is not currently on the agenda. Their plan is to “cooperate where we can, disagree where we must,” indicating that they do not intend to provoke China in the near future.

China’s diplomatic strength remains formidable, but in the case of Australia, flexing those muscles backfired. As a result, Australia is seeking to reduce its dependence on China by signing free-trade agreements with India, Britain, and the EU. China must now look for other countries to import goods from, or they may choose to lift their bans. However, a complete lifting of the bans would be an admission of China’s mistakes. For Australia, this is a diplomatic victory.

However, Australia’s fortunate position is not easily replicable. Very few countries possess the wealth and natural resources that shielded Australia. Even under these circumstances, many are eager to learn from Australia’s successful escape from China’s grip.