Australia and China’s Economic Codependency Amidst Political Strain

Australia’s Prime Minister, Anthony Albanese, is set to make history by becoming the first Australian leader to visit China in seven years. However, this visit takes place in the context of deteriorating relations between the two nations, compounded by Canberra’s deepening military connections with Washington.

In recent years, Australia and China have exchanged accusations related to human rights violations and perceived threats to national security. Public perceptions of each other have reached all-time lows. Nevertheless, the economic ties that bind them make complete disengagement unfeasible.

At the height of their trading relationship in 2020, nearly half of Australia’s exports were directed towards China. In comparison, approximately 9% of all U.S. exports and a mere 5% of British exports found their way to China around the same period. This level of economic leverage has proven to be a compelling diplomatic instrument, as illustrated when Australia called for an independent inquiry into the origins of COVID-19 in 2020.

China’s reaction was swift, with a series of tariffs and restrictions imposed on Australian goods, affecting approximately $20 billion in trade, including products like barley, beef, wine, coal, timber, and lobster. This economic pressure sent a clear message: China was dissatisfied with Australia’s stance on the pandemic’s origins.

Subsequently, China lifted many of these restrictions, influenced in part by a change in tone from the newly elected Australian government. Prime Minister Albanese emphasised the importance of dialogue and constructive communication, noting that trade with China was more valuable than that with Japan, the U.S., and South Korea combined. This signalled a diplomatic approach that prioritised normalising relations between two economies highly complementary to each other.

China’s use of economic coercion did not fundamentally alter Australia’s stance on various issues. Still, the economic impact on Australian businesses and workers was substantial. The Australian government concluded that maintaining its economic links with China was too vital to sacrifice, prompting a diplomatic shift.

This case exemplifies how economic interdependence can compel nations to navigate political disputes while preserving crucial trade relationships. In a world where politics and economics are intertwined, maintaining a delicate balance becomes imperative for countries like Australia and China.