How Will the New Australian Government Approach Trade Relations with China?

Australia-China relations have deteriorated in recent years, with several formal trade complaints being heard at the WTO, and other disputes taking place in a more informal way. In addition, disagreements and heated rhetoric between the two governments on non-trade issues have spilled over into the economic sphere.

After the recent Australian federal elections led to a change in government, with the Labor party and its head Anthony Albanese now in charge, it may be possible to improve relations. At an early press conference, Albanese was asked some general questions about China issues, but did not give any definitive answers (see the partial transcript at the end of this article). It may take some time to sort out the direction they will take.

CTM reached out to several trade policy experts based in Australia to get their views on these issues: Colin Picker of the University of Wollongong, Lisa Toohey of the University of Newcastle, and Weihuan Zhou of the University of New South Wales. We asked a series of questions about the sources of the current friction, possible ways to improve the situation, and the Albanese government's policy preferences here, and we provide a summary of their answers below.

What caused the souring of relations?

The first set of questions we asked was as follows: "It seems like the souring of Australia-China trade (and other) relations over the past few years is the result of a combination of substantive policy decisions and the rhetorical tone of leaders. In your view, which is more to blame here? Did the policy choices make bad trade relations inevitable? Or was it the public rhetoric that was the main problem?"

Picker noted that, with regard to the Australian side, "it is more to do with the rhetoric, driven by domestic political concerns." Nevertheless, he said, "there are clearly deep substantive issues at play – primarily the ongoing and evolving relationship with the U.S., which can drag Australian foreign policy into directions it might not otherwise wish to go." It was Trump’s bellicose rhetoric towards China that dragged Australia into the current stagnant relationship, and unlike the U.S., there is little that Australia has to offer that can persuade China to return to a better relationship with Australia.

With regard to the prospects for change, Picker noted that the previous Australian government’s rhetoric was designed for its right-leaning base. The new government, in contrast, has a different constituency, and while it might wish to highlight human rights issues, overall "the rhetoric will be less problematic going forward."

Turning to the Chinese side, Picker said that rhetoric and domestic political considerations "are again at the heart of the Chinese attitude." Facing so many internal challenges, "China needs to provide an external distraction for its population," and Australia makes for an easy target here.  

In response to these same questions, Toohey said "there was a balance of substance and rhetoric that contributed to the rapid deterioration of the Australia China relationship," but overall "the problem lay in the hawkish rhetoric." In this regard, Australia was very outspoken about the "Chinese origins" of Covid-19, and federal Australian politicians "went on the front foot on a range of issues from the Belt and Road initiative, and banning Huawei and ZTE from the 5G network." She also noted that public sentiment in Australia "has definitely become more anti-Chinese in recent years - and the tit for tat between the two governments hasn't helped."

Underlying all of "the frenzy," Toohey explained, "is an uneasiness about the interplay between liberal values and trade gains." Ordinary citizens "don't quite know whether or not China is trustworthy, whether it has imperial ambitions, and whether the price of trade is worthwhile."

And finally, Zhou responded to these questions by noting that "the relationship deterioration was a result of a mix of factors, including differences on fundamental values, disagreements on political issues, strengthened Australia-US alliance particularly on security issues, lack of trust on the Chinese government, and lack of diplomacy in addressing these issues on both sides." Some of these issues were "politicised domestically in Australia, perhaps also in China," he said.

While there was arguably a "more balanced and diplomatic approach that both sides could have taken to de-escalate the tensions," they chose "to maintain their respective policies instead of responding to the needs of each other in a constructive way." The consequences have been damage to businesses and people and on bilateral relations, "without any meaningful impact on the policy choices in both countries."

What could the Albanese government do to improve the situation?

The second set of questions was: "What could the Albanese government do to improve the situation? Are there specific trade/investment-related policies that could be adjusted to improve relations? Is there an approach to public rhetoric on China trade issues that could make for better relations?"

With regard to ways to improve bilateral relations, Toohey indicated that the two governments "need to stop doing diplomacy through politicians and the media, and instead focus on rapprochement through diplomatic channels." She said that "[d]iplomats are skilled in working around values conflicts," and "need to work out how to reconcile competing values, and not seek to persuade, cajole or threaten for change."

Toohey also that "both Australia and China would benefit from returning to a rules based approach." For example, they should stop "pushing the limits of anti- dumping and countervailing duties," which "has arguably done more damage than it has prevented, for both countries." De-escalation here is essential, she said.

On this same point, Zhou said that "both countries should use [the current] window of opportunity to genuinely engage with each other with an aim to finding short-term or long-term solutions to addressing their disagreements." They should "park those most difficult issues if they can’t find a solution and then focus on furthering cooperation in areas of common interests."

Finally, Picker argued that "[t]he most important thing they could do would be to make a decision that they wish to improve the situation." He drew a contrast with the previous government, which perhaps did not see it as in their interest to fix the issue, and was "willing to let certain industries suffer for the benefit of the government’s political needs." He also noted that "[s]imply welcoming the overture that the Chinese just made in their first official communication in more than a year" would be helpful. He suggested tentatively that "perhaps a first step could be to push for discussions and completion of negotiations on the second stage of the China-Australia FTA," but, he cautioned, "that requires both to step back from the rhetoric."

Does the Albanese government want better relations?

Finally, the third set of questions was: "Would the Albanese government even want to improve relations at this point? Or are better relations with China toxic for domestic politics, and the new government is not likely to put too much effort into improving things? Will they focus instead on cementing alliances with the U.S., Japan, India, etc.?"

In terms of what the Albanese government wants, Zhou said "[t]he new Labor government seems to be committed to a change to ensure issues such as national security do not become politicised." And Albanese "has welcomed China’s Premier Li’s congratulatory message on his election," which "showed willingness to re-engage."

On these questions, Toohey believed that Australia and China "both have a lot to gain from a better relationship." While the Labor government "will, like Biden, be firm on human rights standards," she thought we would "see a much more constructive rhetoric." There will be "an expansion of diplomatic activity generally - relationship with the Quad as well as rebuilding with China."

And finally, Picker noted that international relations, and international economic relations in particular, is "not really a zero-sum game." These issues do need to be carefully managed, however, and can become a source for negative rhetoric. Therefore, it is critical that "this new government engage with China, seeking cooperation and collaboration rather than conflict."

Partial transcript of Albanense press conference

Question: While you're here in Japan, there has been overtures from Beijing, from Li Keqiang, the Chinese Premier, about wanting to use your election as an opportunity to reset the relationship. How seriously do you take these statements and what would it take, what would Australia demand of China? ...

Answer: Well, I have received now, a letter of congratulations from Premier Li, as I have from other world leaders and I welcome that. We will respond appropriately in time when I return to Australia. But it was a formal letter that went through. I welcome the congratulations overseas from all over the world.

...

Question: The previous government made several attacks, particularly leading into the campaign, in relation to your prospective ministers and China. Peter Dutton said Penny Wong would be sucked in by President Xi. Richard Miles was called The Manchurian Candidate. Do you feel you've made some steps today in convincing any Australians who listened to that and were fearful that you're on the side of the US and and not on the side of autocrats?

Answer: Well, serious people didn't take those comments seriously. And what we shouldn't do when we speak about Australia's national interest is try to score cheap, political domestic points by doing it, because that's not in Australia's national interest. The truth is that Australia is a great democracy. We stand for our values which are consistent. I, whenever asked, must have been hundreds of times now, have said that the demands which were placed by China are entirely inappropriate, we reject all of them. We'll determine our own values, we'll determine Australia's future direction. It's China that's changed, not Australia.

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Question: WA rewarded you tremendously in the federal election. And given one in four jobs in WA depend on China, do you owe it to West Australians to fix that relationship?

Answer: ... Australia seeks good relations with all countries. But it's not Australia that's changed, it's China has. It's China that have placed sanctions on Australia. There is no justification for doing that. And that's why they should be removed.