China will 'quietly' back down from its trade war with Australia, leading researcher claims

China will ‘quietly’ back down from its economic coercion of Australia in the face of increased pressure from the US and other allies this year, a leading expert has predicted.

Dr Jeffrey Wilson, research director at the Perth USAsia Centre, said 2021 ‘will not look like’ last year where Beijing progressively blocked most of Australia’s top exports including coal, seafood, wine, barley, timber and meat after Scott Morrison called for an inquiry into the origins of coronavirus.

The change of administration in the US shifts the dynamic of the dispute in Australia’s favour because Joe Biden is more likely than Donald Trump to pressure China to back down, Dr Wilson told Daily Mail Australia. 

‘The incoming Biden administration actually cares about containing China in a rules-based system. So when we get punched that’s a problem for him. It didn’t even occur to Trump that this was something the US should care about,’ he said.

Biden has vowed to end Trump’s America First approach to foreign policy by restoring American global leadership, calling out human rights abuses and strengthening traditional alliances.

On 3 December, Biden’s new national security advisor Jake Sullivan, who has argued for a competitive approach to China, tweeted ‘America will stand shoulder to shoulder with our ally Australia.’ 

The tweet did not mention China but was clearly a reference to the tensions between Canberra and Beijing. 

‘This shows how seriously the US takes the issue,’ Dr Wilson said. 

‘It’s OK for China to bash Australia when Trump doesn’t care. But when the US says “if you’re going to pick on my little brother then you’re picking on me”, that completely changes the story for China. 

‘Once the US gets involved that’s a big escalation that they don’t want. There’s an argument to be made that this will be the thing that actually stops this.’

In January 2019, President Trump signed a ‘phase one’ trade deal with China to end an 18-month trade war between the world’s two biggest economies. 

Dr Wilson said China wants to avoid more economic tension with the US and would feel threatened by the possibility of sanctions or tariffs implemented by Biden. 

‘China can’t beat America in a trade war and they don’t want to fight with a peer,’ he said. 

‘They’ve just come out of a trade war with Trump which was terrible for their economy and cost them billions, the last thing they want is one with the Biden administration as well.

‘If they are thinking clearly then this will really make them back off and my suspicion is this is what they will do over the next year.

‘2021 is not going to look like 2020 where every two to three weeks another trade sanction is whacked on,’ he added. 

‘I would be very surprised if they continue doing that once the Biden administration has got its hand back behind the wheel.’

Officials in Canberra are also hopeful that a Biden White House will be better for Australia than a second term of Trump.

‘I think that line of argument is correct,’ a national security source told Daily Mail Australia. 

But it’s not only pressure from the US that may force China to back down.

In December Australia referred China to the World Trade Organisation over its 80 per cent tariff on barley imposed in May. 

Beijing claims the tariffs are needed because Australia has been selling barley below the cost of production in a practice known as dumping, which Canberra denies.

Taking China to the WTO effectively brings 164 member nations into the dispute. Even though a ruling could take years, the move calls Australia’s allies into action.

‘The significance of the WTO case is not that we will get tariffs removed on barley – which we will when we win – but it’s about making this is a global issue and not just about Australia any more,’ Dr Wilson said. 

‘It takes the dispute out of that bilateral situation where China is about 13 times larger than Australia in economic terms and moves it into a multilateral forum.

‘It moves from being an Australia-China political issue, in which China doesn’t mind how much Australia hates them at the moment, to a multi-lateral one where the US, the EU, Japan, the rest of the world are involved.’

Dr Wilson said dealing with China in a global forum ‘greatly raises the political cost’ to Beijing of using economic coercion. 

‘That changes the political calculus for China dramatically. They’d be very happy to get in a trade dispute with Australia but probably not the US or Japan,’ he said. 

A third factor that may force China to back down is fear of backlash from its 1.4billion citizens who suffer from trade restrictions. 

Apart from being denied Australian wine and lobster, millions have endured power blackouts due to a ban on Australian coal.  

Cities in the Hunan, Jiangxi and Zhejiang provinces turned off street lights and rationed electricity as power stations which had been specifically adapted to handle efficient Australian coal failed to generate enough energy.

‘The trade war is also impacting Chinese people as cities where they haven’t rationed power for 25 years are facing blackouts,’ Dr Wilson said. 

‘If the government really stopped and thought about this before they had done it, they might have checked what would happen if they banned Australian coal.

‘Someone’s gone and done it at a very high level and not really bothered to check the consequences.’

Dr Wilson said the blackouts are a ‘serious problem’ for the Chinese Communist Party which draws its legitimacy and popular support from providing economic development.

‘If they can’t keep the lights on over winter, it’s a pretty damning indictment on their capability as a regime,’ he said.

‘For all the horrors of the Trump administration during Covid, the US never suffered rolling blackouts. 

‘China is a world super-power that can’t keep its major cities with electricity.’ 

So if Australia-China relations are destined to cool this year, the question is how?

In the past when China has used trade sanctions to coerce other countries, relations have been normalised by appeasing Beijing. 

This happened with Norway in 2016 when a six-year dispute was ended with a one-sided joint statement that said Norway ‘fully respects China’s sovereignty and territorial integrity’. 

In November the Chinese embassy in Canberra issued a list of 14 grievances including Australia’s free press and politicians being critical of Beijing – but Scott Morrison has insisted none of the points is negotiable. 

Furthermore, Dr Wilson said China knows its 14 demands are unrealistic and that it ‘doesn’t really’ want Australia to do anything different.

He believes Beijing is just ‘making an example out of us’ to warn to other countries in the region such as Indonesia, the Philippines and Malaysia not to speak out against China, whether over human rights abuses in Xinjiang province or illegal territorial claims in the South China Sea.

‘They don’t have any demands they just want us to get bashed so somebody else can watch,’ he said. ‘It’s a mafia hit for the sake of scaring off the others.’

A more likely scenario than Australia giving ground, therefore, might be that China simply decides to remove the bans it has placed on Australian exports. 

‘I think they’ll probably find a way to make it quietly go away, they might start bashing another country or there’ll be some misdirection with a huge propaganda effort,’ Dr Wilson said.

‘Chinese officials are probably going “oh s***, how can we get out of this one? The Americans are coming back in, the Australians
have stood firm, we’re going to lose our trousers at the WTO when it gets there, we’ve massively over-reached here, how do we get out of this without looking weak?’

But Dr Wilson said there may still be some twists and turns to come in the Canberra-Beijing relationship, not least because it’s almost impossible to predict what the Chinese government will do next.

He noted that Politburo members are communist party members for life who ‘have been indoctrinated in nationalism and are working in what is increasingly becoming a totalitarian system’.

‘Common sense and rationality aren’t necessarily principles on which their decisions are being made,’ he warned.