WHAT IF WE STOPPED TRADING WITH CHINA…?

It’s clear that China has chosen to bully Australia in 2020.  Australia has been outspoken in criticising China over many issues (Uyghurs, Hong Kong, Huawei, espionage, Confucius Institutes, mistreating Australian journalists, claiming international islands in the South China Sea, Belt and Road Initiative) and has also appeared to be a henchman for US foreign policy.  Using the Chinese proverb, ‘Kill one, scare 100’, now China has responded by bans and tariffs on all sorts of exports, using Australia’s treatment also to scare other countries. 

Clearly China is a much stronger economic power than Australia.  But, rather than give in on important ethical and moral issues (though we have so many problems ourselves, we can hardly take the high ground), what might happen if – instead – we tried to live without Chinese exports or imports.  What if we stopped trading with China?

Main Export Casualties:  Iron Ore, Gas, Coal, Agriculture, Education, Tourism, Wine

Minerals exports worth $80bn dominate our exports to China.  Agriculture ($14bn), Education ($12bn), tourism ($11bn) are other major exports, with wine at $3bn.  Exports to China represent 30% of all students at our universities, 25% of agriculture exports, and is also our main tourism and wine export market.

Main Import Losses:  IT and Telecom Goods, Furniture, Homewares, Clothing

By comparison, we import less from China, but the product range is very large, covering mostly elaborately transformed manufactured goods.  IT and telecom products ($21bn) are the main imports, followed by home and office furniture and homewares including electrical goods.  Surprisingly, clothing is not listed as a major item, though clearly much of our clothing does come from China.

What If We Stopped Importing from China?

As a retaliation, at first, this would seem to be catastrophic.  But, as covid has shown us, crises lead to great innovation. There is now a real desire for more local sourcing, as we have become aware of our vulnerability from global suppliers and as unemployment has soared. 

We used to be a major manufacturer.  Covid showed we could quickly manufacture again (plastics, PPE, vaccines).  Yes, it would be more expensive, but we would be employing Australians, re-skilling and becoming less dependent. 

Alternatively, we could find new sources.  Other Asian countries are low cost providers and Europe have always provided quality.  As prices increased, we would buy less, reducing our consumption, improving our environmental performance (less resource use, less waste, less carbon emissions, less transport kms) and our balance of trade simultaneously.

Though it would be painful and take time, there are other suppliers of all the goods we need and we are capable of supplying most products locally, if we are prepared to pay.

What if We Stopped Exporting to China?

Our few major mining companies (BHP, Rio Tinto, Fortescue) would take a big cut in short-term revenue, but they actually employ relatively few people, so few jobs would be lost.  These products can also be stockpiled, so sales might only be deferred, if new markets could be found.

Agriculture would be more problematic, as products have shorter lives, but even these could be stockpiled for a year or more, while seeking new markets.  (Remember the great wool and wheat stockpiles of late last century?)  New markets could emerge quickly, as China’s favoured suppliers could be replace in their old markets, albeit perhaps at lower margins. 

Much of the wine going to China has been lower quality lower margin wine (the pictures of Grange Hermitage are nice, but this is not the main market).  Wine can also be stored, so short term lost sales may return in later periods, especially if new markets (India?  Asia? New wealth segments?) can be developed.

Our education industry would have huge revenue losses too, but more local students could be enrolled and diversified marketing might attract a more diversified student mix than currently exists, with Chinese students dominating.  Reduced international student numbers might also lead to improved quality, as many short cuts have been taken to enrol marginal high fee paying students.  Teaching jobs would be lost, but many of these would be part-time or casual tutors.  The 2020 covid experience showed the system could survive a huge operational upheaval.  Online teaching might also increase new international opportunities.

Tourism from China has grown rapidly, but much has been run by Chinese-based operators on Chinese-only group tours arriving on Chinese airlines, providing little economic value to Australia.  In the short term, covid restrictions on international travel mean Australians will replace internationals travelling Australia so our ‘import’ costs (Australians travelling overseas) are reduced and replaced by similar spending within Australia, boosting local tourism, counteracting the fall of international travel.  The loss of Chinese travellers (or any other specific nationality) is not catastrophic overall.

The Outcomes?  Bad for China!

Clearly a complete ‘sanction’ on trading with China would be extremely disruptive.  Equally clearly, we have the means to replace imported products and diversification of exports is also possible, albeit with some time lags. 

A more likely long-term outcome is that China is creating the seeds of its own power demise.  Bullying one country leads others to be more wary.  Future Chinese exports will be jeopardised through perceived increased political risks.  China will be viewed as an untrustworthy trading partner, reducing its future economic and political power. 

China seems too smart to continue down this track for long.  Standing up to China will be perceived well and, after robust negotiations, China will back down on most demands.  Worse for China, never will we trust it again, as we have over recent years.  And our economy and society will be the better for it in the long run (this applies to being dependent on any other country, not just China).