The joint statement from this year’s Australia-US Ministerial Consultations (AUSMIN) noted “the coercive use of trade and economic measures that undermine rules-based trade”, calling out China’s campaign of economic intimidation against Australia in all but name.
Even more remarkable, however, is that the communique employed almost identical language to that coming out of a string of bilateral ministerial meetings in the lead-up to AUSMIN between Australia and India, Japan, Singapore, New Zealand and France.
The Australian government has been rallying allies and regional partners to internationalise the issue of economic coercion. Apart from demonstrating that Australia is not diplomatically isolated on the issue, the solidarity offered by these statements implicitly raises the threat of a collective response to China’s actions should they escalate.
Whether the implied threat of a collective response disciplines China’s future behaviour towards Australia remains to be seen. It is far from clear what form such collective action might take, but a counter-coercion framework is under active consideration by policymakers, not just in Canberra and Washington, but also in the European Union and elsewhere.
This collective response to China’s economic coercion highlights the fact that its use of economic statecraft has often been ineffective in furthering its geopolitical ambitions.
There have been instances where other countries have offered up minor diplomatic and other concessions in response to these tactics. But for the most part, China’s actions have prompted defensive reactions and encouraged even greater co-operation with the US.
In Australia, public sentiment towards China has collapsed and the policy positions of the Australian government have hardened. The new trilateral security arrangement between Australia, the UK and the US (AUKUS) only serves to underscore China’s diplomatic failure.
China’s actions have also imposed costs on Chinese consumers and producers, but China has shown a willingness to incur substantial economic costs in asserting its foreign policy positions.
Even domestically, China is prioritising party-political control over economic growth. The party-state’s politically motivated regulatory crackdown on education and tech companies has destroyed the value of many Chinese firms.
For the first time since 2017, no Chinese firm is left in the top 10 global companies, such has been the extent of value destruction.
Some analysts have claimed that China is the world’s leading practitioner of economic statecraft. China’s overseas investments, pursuit of bilateral and regional trade agreements, foreign aid and its Belt and Road Initiative are often viewed as being fused as part of an overall geoeconomic strategy aimed at securing its access to vital economic inputs, increasing economic dependence and expanding its geopolitical influence.
However, its use of economic statecraft also reflects constraints on its ability to pursue its objectives through military, diplomatic and other policy instruments.
In particular, its lack of allies in the international system constrains its ability to work co-operatively with other countries to promote its interests. The use of economic coercion is as much a sign of weakness as strength.
At the same time, the US has been coming up short in its own conduct of economic statecraft. The failure of the US to join the Trans-Pacific Partnership and its inability to progress a trans-Atlantic trade agreement are widely acknowledged as failures of both economic policy as well as diplomacy. These failures straddle the Obama, Trump and Biden administrations.
President Trump took a zero-sum view of the economic relationship between the US and China, yet ironically sought a trade deal that would bind the two economies closer together. The Trump administration oscillated between decoupling and locking the US and Chinese economies into a managed trade deal that undermined US allies, including Australia, by promoting trade diversion to US producers.
The Biden administration has left the Trump administration’s tariffs in place. It shows little sign of prioritising trade negotiations, having let Congressional Trade Promotion Authority laws lapse. US disengagement from the evolving Indo-Pacific regional trade architecture represents a major challenge for Australian policymakers looking to the US to balance China’s economic role.
Australia and the US have increased co-operation in some geoeconomic-related policy areas, most notably on defence industry, technology and critical minerals. Prime Minister Morrison has called for an annual economic dialogue between Australia and the US to complement the existing AUSMIN talks, with China’s economic coercion and reform of the multilateral trading system as agenda items.
While Australia has sought to put geoeconomic issues on to the AUSMIN agenda, it is still an under-developed element in the alliance relationship.
An inwardly focused US Administration captured by domestic policy interests is likely to be a major constraint on further alliance co-operation, including the development of a collective counter-coercion framework.