Can weaponising trade be justified when honest business principles become impossible to apply between countries?
Market access has been used as a diplomatic weapon on both sides in the current trade war and appears to be carried out without break regardless of the highly antagonistic regime change that has occurred in the US.
However much the new Democrat administration differs from the previous Republican one - and it is light years apart on domestic and many aspects of foreign policy - the two are largely united on China.
In Orwellian terms, we have Oceania and Eurasia supposedly in alliance against Eastasia to borrow from George Orwell's 1949 dystopian novel Ninteen Eighty-Four.
While vague outlines in his tale could be dimly perceived in the previous century, such visions have come into sharper focus today with the world in the grip of one continuing crisis after another, lately with strict control on population movement and mass surveillance of the citizenry.
Moving from fiction to fact, we move to the current trade war between China or the Orwellian Eastasia as it might be called, against Ninteen Eighty-Four's Oceania, that is America, UK, India, Japan and Australia. Eurasia, in the book was Western Europe and Russia, in and out of favour with the other two power structures. Africa and South America were referred to as battlegrounds.
These days, one can ask, was Orwell far from wrong?
Looking at the particulars in the here and now, there is the extremely distant and most vulnerable of the Oceanianic team, namely Australia, being shut out of namely China's barley and coal markets because Canberra had the temerity to back demands for an external inquiry into China's role in the genesis of the never-ending Covid crisis.
China is by far Australia’s largest trading partner in goods and services, accounting for 39.4 per cent of goods exports and 17.6 per cent of services exports between 2019 and 2020, research firm Capital Economics said.
Beijing has shown that it’s willing to use trade as a geopolitical weapon, and worries Canberra by cozying up to nearby Papua New Guinea (PNG), according to the Verisk Maplecroft consultancy report. Some say China is setting a debt traps, ensnaring smaller states like PNG in schemes that lead to the forfeiture of strategic assets. A study by Verisk Maplecroft, the Somerset research institute, also cited the example of China banning Australian coal.
“If China has a soft underbelly, it is its high dependency on foreign natural resources,” said its report, cited in the Hong Kong Standard.
For example, there is an ownership risk in the number of Chinese-owned base metals and gold companies in Oceania, this time meaning Australasia, Melanesia, Micronesia and Polynesia. Chinese ownership in this realm rose from zero in the year 2000 to 59 last year - that's 2.6 per cent of total foreign ownership in such companies.
China is a large consumer of major commodities including crude oil and iron ore. But the country relies heavily on imports to meet its domestic demand for those commodities.
One way China diversifies import sources is by buying stakes in overseas companies, said the Verisk Maplecroft study. Doing that will increase the proportion of Chinese-owned resources in the country’s total imports, the report said.
“China is seeking to strengthen its control over global supply chains via overseas investments and partnerships with international majors. Beijing has been supporting Chinese SOEs [state-owned enterprises] to ‘go global’ and establish control of resource bases overseas since the late 1990s,” said the report.
China imports critical commodities such as crude oil, natural gas, metallurgical coal and iron ore from a “highly concentrated” group of trading partners, said Verisk Maplecroft.
In diversifying its import sources, China prefers suppliers from “stable autocratic regimes” to democracies that may involve frequent changes in governments or potential shifts in policy, it added.
“Our data shows China is pivoting towards more autocratic regimes that represent greater stability for its supply lines than democracies that are, or may become, hostile to Beijing. But it is also using its massive market as a source of diplomatic leverage,” the consultancy said.
“By securing diversified sources, China will be in a better position to weaponise trade with geopolitical rivals, while at the same time increasing the economic dependence of new and existing partners,” said Verisk Maplecroft.
But democratic countries dominate the production of some resources - one of them is iron ore. China’s largest supplier of iron ore last year was Australia, an American ally that was hit by Beijing’s trade restrictions.
Australia shipped a monthly average of 60.86 million tonnes of iron ore to China in 2020, accounting for more than 60 per cent of overall Chinese imports of the commodity.
That’s why China has been strengthening trade ties with other iron ore producers such as Brazil and Guinea, according to the report.
“Despite a tougher line on Beijing under President Jair Messias Bolsonaro, Brazil remains a priority in China’s diversification strategy, while Guinea is politically well disposed to Beijing amid democratic backslide,” the report said.
China is by far Australia’s largest trading partner in goods and services, accounting for 39.4 per cent of goods exports and 17.6 per cent of services exports between 2019 and 2020, said research firm Capital Economics.
Beijing has shown that it is willing to use trade as a geopolitical lever, citing China's ban of Australian coal. Relations between the two countries soured after Australia supported a call for an international inquiry into China’s handling of the Covid crisis, which first emerged in the city of Wuhan.
Such geopolitical tensions could persist as China speeds up its effort to reduce its reliance on “unfriendly” resource suppliers.
“Banning imports of coal from Australia was a prime example but more are likely to follow, with significant impacts on the trade in global commodities and the geopolitical landscape likely,” it said.
“Companies and investors are in the direct sights of Beijing’s diplomatic moves and will need to prepare accordingly.”
As of yet, few appear to care about these developments, preferring to ascribe disturbing developments as a way of for forestalling even more disturbing outcomes. One can only hope that such an approach has a more promising future than it had in the past.