China flexes its trade muscles

Charles Dunst is an associate at LSE IDEAS, the London School of Economics’ foreign policy think tank.

No matter how you look at it, China’s treatment of Australia during the coronavirus crisis is a cautionary tale.

After incompetently letting the coronavirus loose on the world, Beijing slapped tariffs on Australian barley this week in an unmistakable show of muscle after Australian Prime Minister Scott Morrison said last month that he wanted an independent inquiry into the COVID-19 outbreak.

For the Chinese Communist Party (CCP), the move is obviously intended as a warning for other leaders considering standing up to Beijing. For European countries like Germany, the Netherlands and Italy, which export billions of dollars worth of goods to China every year, it should serve as a wake-up call about what it means to be dependent on Chinese trade.

Beijing has said the tariffs are a response to what it considers “dumping” by Australian barley producers. But it comes just weeks after the Chinese ambassador to Australia threatened a Chinese boycott in response to Morrison’s comments: “Why should we drink Australian wine? Why eat Australian beef?”

The fact that China, itself a trade surplus country, is willing to use punitive trade actions as a first-resort response should indeed alarm Beijing’s European partners.

The editor-in-chief of the state-run Global Times newspaper then described Australia as “chewing gum stuck on the sole of China’s shoes” (an attack that is particularly aggressive in Asia), adding: “sometimes you have to find a stone to rub it off.”

When Canberra pressed forward with its calls for an inquiry, Beijing suspended imports from Australia’s top meat processing facilities and imposed the tariffs on barley — measures that could cost the country upward of $500 million annually.

European exporters dependent on China are similarly exposed to the CCP’s pressure. Given Beijing’s now-demonstrated willingness to retributively leverage trade relationships for political purposes, China’s European partners should seriously reconsider their own economic interdependence with the country and think about careful decoupling from the Asian giant’s economy.

Australia’s relationship with China soured in 2018 when the former banned the effectively Chinese state-owned company Huawei from its nascent 5G network. Despite American lobbying and cybersecurity fears, the European Union ruled out banning Huawei, leaving the decision to individual member countries.

German operators Deutsche Telekom, Vodafone and Telefonica are all Huawei clients. German Chancellor Angela Merkel favors a level playing field for all providers, although some within her party favor banning the company. But when Germany debated Huawei, China’s ambassador there threatened “consequences” if Germany excluded the telecoms giant from its market.

Germany’s hesitance to ban Huawei, likely due to fear of Chinese retribution, will surely be augmented by China’s aggressive approach to Australia. These fears are not misguided, given that Germany exports some $95 billion of goods, namely cars and vehicle parts, to China every year — and that a disturbing percentage of that could disappear at the snap of the CCP’s fingers.

Germany is not the only vulnerable European state. Italy exports around $16 billion of goods to China annually. Dutch exports to China are worth around $12 billion per year.

For these and Beijing’s other European trade partners, Chinese billions come at a moral cost: placation of the CCP, a repressive regime currently carrying out a cultural genocide of China’s Uighur Muslims.

Such placation was perhaps best evinced in late April when European Union officials bowed to CCP pressure and softened their criticism of China in a report on disinformation.

“China has continued to run a global disinformation campaign to deflect blame for the outbreak of the pandemic and improve its international image,” the initial report said. After China got wind and threatened the European Union, Brussels’ senior officials ordered revisions “to soften the language.”

European appeasement of the CCP is no accident; it is the result of European leaders’ economic calculations. Many European governments are now in too deep and simply do not want to deal with the financial headache of falling out of Beijing’s good graces. China, in response to any perceived slight, could impose damaging tariffs on German car parts, Italian cars or Dutch malt extract.

China’s harsh treatment of Australia — at a moment when the latter faces its worst economic conditions since the Great Depression — further serves Beijing’s aims by demonstrating its global power and heightening European concerns, thus preemptively shutting many European mouths from criticizing the CCP.

The fact that China, itself a trade surplus country, is willing to use punitive trade actions as a first-resort response should indeed alarm Beijing’s European partners. It should also prompt them to prepare punitive economic policies, such as tariffs on Chinese goods that recipient states can easily find elsewhere. This could have a substantial impact, given that annual Chinese exports to Germany are worth around $110 billion, for instance.

Such a response, however, requires European leaders to wake up from their dream of liberal internationalism, recognize the reality of Chinese authoritarianism and reevaluate their countries’ relationships with a great power whose illiberal ruling regime demands complicity. Trade with China is deeply intertwined with the CCP’s construction of an illiberal Sino-centric world order. Europe can no longer pretend otherwise.

Europe’s leaders would be wise to pursue careful decoupling or at least preemptively prepare retaliatory steps — lest they find themselves coerced into the Beijing’s illiberal global order or reduced to gum on the sole of the CCP’s shoe.