Australia and China: From Partnership to Trade War. Part 1

A Flourishing Partnership

Australia and China: A Strategic Relationship

Australia and China shared a robust economic relationship, with China being the largest consumer of Australian resources. This economic interdependence led Australia to treat China as a VIP customer, fostering a strong trade partnership that benefited both nations.

The Onset of Conflict

The COVID-19 Pandemic and Australia's Investigation Request

The harmonious relationship took a drastic turn when the COVID-19 pandemic broke out. Australia requested an investigation into the origins of the virus in China. This request angered China, which had previously been treated as a valued partner.

China's 14 Demands

In response, the Chinese embassy sent a list of 14 demands to the Australian government, which included:

• No interference in issues related to Xinjiang, Hong Kong, and Taiwan.

• No suspicion of China regarding cyber terrorism.

• Allow Huawei to participate in Australia's 5G projects.

• Allow local governments to participate in the Belt and Road Initiative.

• Withdraw the UN speech rejecting China's claims over the South China Sea.

Threats and Economic Retaliation

The Chinese ambassador warned that making China an enemy would result in reciprocal enmity. China did not limit itself to verbal threats but imposed heavy tariffs on Australian imports, such as 81% on barley and over 200% on wine. They halted imports of coal, beef, timber, and claimed Australian lobsters were contaminated with heavy metals, delaying customs clearance and halting imports.

Escalation of Trade Disputes

Impact on Australian Exports

Lobsters, being live animals, needed to clear customs within two days to be distributed alive. China's rigorous inspections led to thousands of tons of lobsters dying in customs, deeply affecting Australian public sentiment.

The Strategic Importance of the Port of Darwin

The conflict's roots also lay in the Port of Darwin, which holds significant strategic importance. Leased for 99 years by Landbridge, a Chinese company, this move was perceived by the US as a military threat, leading to strong protests and a re-evaluation of the port's strategic importance by Australia.

Australia's Countermeasures

Doubling the Price of Iron Ore

Australia retaliated by doubling the price of its iron ore, a critical resource for China. With over 60% of China's iron ore coming from Australia and Brazil's production reduced due to COVID-19, China had no alternative but to accept the increased prices. This move allowed Australia to earn $136 billion annually, offsetting losses from restricted coal and other exports.

Diversifying Trade Partners

Australia found alternative markets for its products, redirecting barley to Southeast Asia, copper to Japan and Europe, and cotton to Bangladesh. The ban on lobsters saw them rerouted to Hong Kong, which then re-labeled and exported them to China, albeit at higher prices.

The Deepening Crisis

The Shanxi Flood and Coal Shortages

In October 2021, a massive flood hit Shanxi Province, reducing coal production in China. As winter approached, coal supply issues threatened 60% of China's energy production, impacting urea production, crucial for urea water solution (AdBlue). China's export ban on urea in October 2021 led to a crisis in South Korea, heavily reliant on Chinese urea.

South Korea's Urea Crisis

South Korea faced a severe shortage of urea water solution, vital for diesel vehicles. The crisis was mitigated by importing urea from Vietnam and Russia, with Japan also supplying urea, highlighting South Korea's vulnerability due to its reliance on Chinese imports.

Strategic Maneuvers and Long-term Implications

Simandou Mine in Guinea

China believed it had a trump card with the Simandou iron ore mine in Guinea, boasting 86 billion tons of high-quality iron ore. However, a coup in Guinea in September 2021 led by Colonel Doumbouya, who had no ties to China, halted the development of the mine. This setback was significant as China had heavily invested in Guinea's resources.

Bauxite Export Restrictions

Guinea's restriction on bauxite exports, a critical resource for aluminum production, posed another challenge for China. With Guinea supplying 60% of China's bauxite, any disruption significantly impacted China's aluminum industry, further straining the trade relationship.

Continued in Part 2