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Trade tension between Australia and China

How does it affect the region?

The simmering trade tensions between Australia and China would, certainly, adversely affect not only Australia, but also the region as a whole.

The latest in the on-going tit-for-tat tariff war is the Chinese government’s imposition of punitive tariff on Australian wine imports. The successive regime of Chinese sanctions include a range of tariff on Australian products such as beef, lobster, barley, timber and coal.

The immediate effect of the 212 percent tariff on Australian wine by the Chinese government is that it could make business economically impossible for a $3 billion worth Australian wine industry that exports almost 40 percent of its products to Beijing.

Although China claims that the recent tariffs were resultant of what it called “Material Damage” to the local market after findings of an anti-dumping probe into Australian imported wine in August, it is clear that one could not rule out other undeclared reasons for the seemingly objective decision on the part of the Chinese regime.  

One of the reasons, as rightly suspected by many observers, is the growing diplomatic tensions over Australia’s stance on the origin of COVID 19 pandemic, which first discovered in Wuhan. Tension started to grow after Australian PM Scott Morrison called for an investigation on the origin of the global pandemic.   

The fact remains that the Australian government’s ban on Huawei’s entry into 5G wireless network in Australia and raising human rights issues against China would have been contributing to the growing tensions between China and Australia. 

Strategic importance of South Pacific region 

Although the South Pacific region is famous for its pristine beaches, geographic and cultural diversity, the region is heir to a host of unique development challenges.  The aggregate population of the region is in the range of 13 million with 14 sovereign nation states.

Australia’s East coast is in close proximity to the Pacific nations of the Melanesian sub-region and there is only six kilometers between Papua New Guinea and Australia. The distance between Australia and Vanuatu is mere 2000 kilometers and atolls in eastern Kiribati is within 3000 kilometers of Hawaii, while Palau is 1,300 kilometers away from Guam.      

Many factors such as over- congested populations with the highest population growth rates, exposure to natural disasters and high vulnerability to climate change make all the nation states fragile, politically susceptible and aid-dependent.    

In general, most of the pacific nations are eager to have development aid and to protect the nation states from ravages of climate change. The strategic significance of the region was recognised as early as the world wars.  

For example, during the world war II, the control over these scattered island nations in the vast Pacific Ocean was vital not only for maintaining logistic supply lines, but also for military force projections. Although the region enjoys a relatively peaceful status, the attention has, once again, drawn to it due to the increasing Chinese presence and its growing footprint in the region.  

Chinese presence in the region

Historically, Chinese presence in the region is nothing new given the fact that Chinese have settled down and have been living in the region for centuries. Essentially, they are well-recognised as talented businessmen with remarkable business acumen, who run some of the region’s oldest trading houses.

Because of the China-Taiwan rivalry, China has intensified its diplomatic and economic activities in the region to win allies and influence over the Pacific nation states.      

Since 2006, China has significantly increased its trade, aid, diplomatic and commercial activities in the region. Besides, Papua New Guinea, with almost all other countries, China has substantially increased its bilateral trade ties with nation states, effectively overtaking Australia.

For Solomon Islands, bilateral trade with China is approximately increased up to 46% of the total volume of its external trade.  According to The Lowy Institute, an independent, nonpartisan international policy think tank in Sydney, Australia, between 2006 and 2017 alone, China has provided nearly U.S $ 1.5 billion in foreign aid to the Pacific Island region through an amalgam of grants and loans. 

By 2017, China was the third-largest donor to the Pacific island region, accounting up to 8% of all foreign aid to the region in the period between 2011 and 2017. Although China is not the dominant aid provider, manner in which the aid were delivered often tied up to large-scale infrastructure projects funded by concessionary loans, make the projects stand out.  It goes without saying that these projects often drew global attention.  

The Chinese strategically used its aid, grants and soft loans to facilitate the market entry of Chinese state-owned companies into the region. By now, these companies have been well-established and entrenched commercially in the respective economies and are competing in commercial activities.   

According to China’s own investment statistics, Chinese construction activity in the region was $958 million in 2017, almost six times greater than its foreign aid activities.

What are the perceive risks?

As far as the South Pacific region is concerned, there are several perceived risks and principal among them is the widespread suspicion and belief that China would use its growing influence in the region to set up a military base.  This may reconfigure the entire military set up in the region although such a possibility is remote.

Series of no-going developments virtually fueled the anxiety of the prospects of China setting up a military base somewhere in the Pacific region. China and Vanuatu recently refused to accept the mooted plans to develop a Chinese-financed major wharf on Vanuatu’s larger and scarcely populated Santo Island being converted into a “Dual use” facility, when it was leaked to the Press.  

A quick reaction came in the form of Australia and the US partnering with Papua New Guinea to restore a naval facility on Manus Island to enhance fishing operations and to keep China at bay. 

However, the most potent risk that observers believe is that China would use its financial might to buy over a disproportionate strategic influence in the region using its aid, economic and investment diplomacy with minimal investments and at a comparatively lesser cost. 

This risk is much more realistic given the economically vulnerable positions and the aid-dependent governments of the small nation states.   

Another incident that caught global attention recently was the move to lease the entire island of Tulagi in the Solomon Islands. These kind of incidents would expect to rise in the years to come. The other risk is that China may promote its business through elite capture, undermining Institutions of governance.

This risk may increase and would frequently occur, particularly, against the backdrop of COVID ravaged economies. China may introduce corruption into the systems in the Pacific nations.  

The stark reality is that the opportunity for Australia to keep China at bay may be remote given that China has already established itself as an important partner of the Pacific Island governments. The opportunity of keeping China away from engaging in business with Pacific government no longer exists. The West needs to deploy greater resolve and consistent approach to mitigate the risks.       

The on-going contestation between Australia and China over wining influence in the Pacific region is going to be intensified in the years to come.  Australia worked hard to revitalise its traditional self-proclaimed leadership role in the Pacific. It has its own inherent advantages including being the largest donor in the region and the Australian market is the largest investors and tourism source for the region. The Australian government is banking on these strategic advantages, while China has focused on broadening the playing field and has hosted even a high-level conference with Pacific in Samoa in October.    

The post- COVID challenges

As traditional partners New Zealand and Australia had an opportunity in the immediate aftermath of the outbreak of Coronavirus to prove that Pacific nation states would have to rely on their traditional partners.  T

The planned travel bubble between Australia, New Zealand and the Pacific, which is to be operationalised in next three to six months, would reaffirm the importance of this reliance on the traditional partners.  

At a greater cost, China has also increased its footprint in the region, strategically utilising the opportunity availed to it by the global pandemic. What China has, is its financial might against greater combined resolve of the West, Australia and New Zealand in their attempt to keep Beijing at bay. 

The years ahead would prove whether China or the alliance of West Australia and New Zealand and others would be able to win the cold war of influence over the Pacific aid-dependent nations. The fact remains that one could not undermine the strategic and geo-political significance of the Pacific region as well as Pacific nation states scattered in the vast Pacific Ocean.

Edited by Elishya Perera

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