Australia’s Defiance of Chinese Economic Coercion Provides Lessons for Others

In recent years, the People’s Republic of China has employed its statecraft to weaponize trade with other nations, typically imposing non‑official sanctions, tariffs, regulations, and consumer boycotts when it perceives a country’s actions as hostile to its political interests, thereby harming the host nation’s economy.

These measures are not driven by market forces and can be withdrawn without any change in the underlying economic concerns that initially motivated them; many countries refer to such trade actions as economic coercion, which is intended to compel a nation to alter its policies, behavior, or decisions.

Among advanced economies with trade deficits vis‑à‑vis the PRC, Australia stands out. The country is rich in natural resources such as iron ore, coking coal, barley, and fisheries, which have long been major export commodities to China. In the 2010s, concerns emerged regarding foreign political influence, dependence on university funding, and Chinese state‑linked investments that raised national‑security issues.

Suspicion of the PRC intensified, leading the Australian government to call for an investigation into the origins of COVID‑19. Beijing responded with retaliatory tariffs on Australian exports, yet it has been unable to compel Australia to alter its policies toward China. Coupled with Australia’s economic resilience, this situation carries important policy implications.

Deteriorating relations

Suspicion surged in 2015 concerning Chinese state‑linked campaigns that sought to influence Australian elites and shape public perceptions of the PRC’s human‑rights record, the Australia‑U.S. security alliance, and the South China Sea. Australia’s Security Intelligence Organisation (ASIO) issued warnings to political leaders and other elites that year.

The issue entered the public sphere in 2016 with the Sam Dastyari case. The Labor Party politician made statements opposing the party’s support for Freedom of Navigation Operations in the South China Sea in exchange for donations from the PRC, funneled through a donor named Huang Xiangmo, and allegedly assisted Huang in evading Australia’s security intelligence apparatus.

This episode exemplifies Chinese espionage tactics, as the United Front Work Department seeks to blur the distinction between legitimate influence and illicit interference, exploiting legal ambiguities in democratic societies to advance PRC state activities.

In response, Australia enacted stricter legislation and adopted a tougher stance against Chinese interference. A key development was the legal distinction between influence—encompassing lobbying, diplomacy, and advocacy—and interference, which involves covert, deceptive, coercive, or otherwise state‑directed actions.

Australia subsequently introduced anti‑interference legislation and investment screening of Chinese firms to strengthen national security, and barred Chinese telecommunications providers such as Huawei and ZTE from participating in critical national infrastructure projects. Diplomatically, Australia has become more vocal on matters concerning Xinjiang, Hong Kong, Taiwan, and the South China Sea.

Origin of the clash

These developments culminated in the Australian government’s announcement of an investigation into the origins of COVID‑19, focusing on the PRC. In April 2020, Foreign Minister Marise Payne called for an independent international inquiry into the virus’s origin and the global handling of the pandemic, a request supported by then‑Prime Minister Scott Morrison.

In May 2020, Australia partially achieved its aim when the World Health Organization agreed to form a multinational investigative committee of over 100 countries, including the PRC, to examine the global response to COVID‑19, rather than focusing specifically on the virus’s origin.

Although the PRC claimed victory—given the limited scope of the inquiry, its findings were less substantial than anticipated—it subsequently imposed and encouraged restrictions on several Australian imports, notably barley, wine, and coal, and asserted that Australia was no longer an appropriate destination for education and tourism.

In November 2020, the Chinese ambassador in Canberra presented journalists with 14 grievances against Australia, encompassing the blocking of Chinese investments on national‑security grounds, the ban on Huawei and ZTE from the 5G network, and the call for a COVID‑origin investigation.

These 14 points highlighted a rare explicit assertion by the PRC of political grievances linked to economic coercion, effectively constituting its demand on Australia; characterizing deteriorating trade ties as a result of policy disagreement aligns with the textbook definition of economic coercion.

Australia’s response

During Morrison’s premiership, Australia identified alternative export markets. While the nominal impact on GDP from 2020 to 2023 remained under 1%, the economic strain was concentrated in particular sectors.

The Department of Agriculture, Fisheries and Forestry reported a 416% increase—equivalent to A$251.6 million (US$173.4 million)—in barley exports to Latin American countries between 2022 and 2023, while total barley exports reached A$3.3 billion in 2023, despite shipments to the PRC falling to zero.

Australia’s agricultural and fisheries exports have also diversified toward ASEAN markets, which surpassed the PRC as the largest importer of Australian agricultural and fisheries products in fiscal year 2021‑22 (21% versus the PRC’s 20%).

Research also indicates that Japan overtook the PRC as the leading importer of Australian coal, accounting for 35% of exports in 2023 compared with the PRC’s 9%.

Conversely, lobster fisheries and wineries struggled to diversify; wine exports declined by 30% and lobster exports fell by 64% between 2020 and 2023.

Notably, the PRC could not curtail Australia’s iron‑ore exports; despite restrictions on agricultural goods, no import ban was imposed on iron ore, which continued to generate substantial revenue for Australia, helping the country mitigate the impact of the PRC’s tariffs.

Australia’s economic resilience bolstered its political resilience. Even as diplomatic relations improved under Prime Minister Anthony Albanese, who succeeded Liberal Prime Minister Scott Morrison after the Labor Party’s 2022 victory, Australia maintained its export strategy, continuing to supply goods to other markets at higher volumes than before the sanctions.

Australia continues to prohibit Huawei and ZTE from its 5G network, consistent with most developed nations; it has not repealed the foreign‑interference legislation, nor has it paused ongoing reviews of related cases; its position on Hong Kong, Taiwan, and the South China Sea remains unchanged, and it has deepened its partnership with the United Kingdom and the United States through the AUKUS alliance, which aims to provide nuclear submarines and advanced deterrence capabilities in the Indo‑Pacific.

Additional measures include blocking a state agreement to the Belt and Road Initiative and enhancing cybersecurity surveillance in coordination with allies, actions that the Chinese ambassador referenced in his 14 points and cautioned Australia against.

This dynamic is illustrated by the PRC’s decision to resume imports and gradually lift restrictions following Prime Minister Albanese’s meeting with President Xi Jinping at the G20 summit. Although the PRC voiced intentions to expand cooperation, it lifted the restrictions without any substantive change in Australia’s political stance or economic model.

Even as relations warmed, Australia has undertaken actions contrary to Chinese interests, such as providing rugby‑league funding to Pacific Island nations conditional on their avoiding security or policy ties to the PRC, and criticizing the PRC for conducting military exercises in international waters between Australia and New Zealand.

Australia exemplifies a unique case: unlike nations that must consider whether their dependence on the PRC is primarily upstream or downstream, Australia is an upstream producer that exports raw materials to China. Consequently, its economic strategies during coercion are difficult to emulate, as relatively few developed countries maintain trade surpluses with the PRC.

The key lesson from this case—intended as a policy model—is the value of pursuing a de‑risking strategy that diversifies a nation’s supply chain to reduce reliance on the PRC.

In Australia’s case, the PRC took strong offense at being targeted internationally and sought to punish the country economically to extract political concessions. However, once Australia offered no concession—economically or politically—the PRC recognized the necessity of continued trade and, after the meeting between Albanese and Xi, began to de‑escalate its coercive measures, despite effecting no substantive change.

To mitigate the economic damage of coercion, it is essential to understand one’s position within the supply chain rather than assuming, based on the PRC’s size, that it is indispensable. Economic leverage is inevitable when seeking political concessions, and as the PRC’s coercive tactics become more sophisticated, countries must adopt de‑risking strategies to avoid recurring, arbitrary trade restrictions.

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