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  • On March 30th 2021, the World Health Organization announced the results of an investigation

  • into the origins of Covid-19 after a field visit to Wuhan, China.

  • They were inconclusive.

  • The 34-strong investigative team declared it was most likely that the virus was transmitted

  • from animals to humans, while the theory that it leaked from a laboratory was deemedextremely unlikely.”

  • The results prompted 14 nations, including Australia, to call for further investigations.

  • Following this response, China, which has been Australia's largest trading partner

  • for over a decade, placed an unprecedented number of tariffs and restrictions on several

  • of the nation's goods.

  • China then retaliated further, 'indefinitely' suspending economic dialogue, a sign of the

  • escalating tensions between both countries.

  • For many people watching, one of the questions they will have is:

  • "There are so many trade wars, why should we care about this one?"

  • The thing that you should really be thinking is, what if

  • my sovereignty decides that I have to make a particular decision and then

  • China institutes similar trade actions against me?

  • So, what does this clash mean for Australia, China and the future of global trade?

  • Before China began to open its economy in 1978, the Asian country was largely rural,

  • and its goods formed less than 1% of world trade.

  • Hello, Will.

  • Hi, Timothyna.

  • Haw are you?

  • I'm very well, thank you.

  • Will Koulouris is based in Sydney, where he covers Australia and New Zealand for CNBC.

  • When did the close relations between Australia and China start?

  • Gough Whitlam, one of our former Prime Ministers back in the 70s,

  • started engaging with China before Nixon went there.

  • The Australian leader's visit to China was a milestone in Australia-China relations,

  • and is credited with the rapid expansion of trade between the two countries, as well as

  • prompting other Western countries to follow suit.

  • China and Australia, from then on, maintained a strong relationship in terms of

  • the trading relationship; it wasn't anything like it is now.

  • Australia benefited from China's opening to foreign trade.

  • Just look at this graph.

  • The country's share of Australia's exported goods rose steadily in the 1970s and exponentially

  • by the 21st century.

  • By 2009, China's total imports from Australia were worth more than $33 billion, overtaking

  • Japan to become the largest importer of Australian goods.

  • China has been Australia's largest trading partner ever since and accounts for more than

  • 26% of the country's trade.

  • China's insatiable demand for Australia's natural resources was one of the main reasons

  • why it had a 29-year run without a single recession.

  • In fact, Australia was the only major economy to avoid a recession during the global financial

  • crisis in 2008.

  • Australia's higher education system is also heavily reliant on fees from Chinese students.

  • They account for about 40% of international students in the country, of which 160,000

  • are enrolled in their universities.

  • China and Australia need each other.

  • There's always something that China could do if they really wanted to.

  • For example, with iron ore, they could, mine the 20 billion tons of iron ore that they've

  • got in China. That are just reserves in the ground.

  • It's lower grade, it's going to cause more emissions when you're trying to use it to

  • make steel. But if they really wanted to, they could.

  • But it would cost them and the economic costs would outweigh any kind of political advantage

  • that you're going to get by not having that relationship.

  • Those ties deepened in 2014 after the signing of a major free trade agreement.

  • It meant that 95% of major Australian goods including coal, barley, wine and beef could

  • enter the country tariff-free.

  • Everybody was on a high here in Australia.

  • When it came to the Australia-China partnership, there was all of these promises of the future

  • riches that Australia was going to garner by this increased cooperation and strategic

  • economic partnership with China because we had just signed the free trade agreement.

  • Thanks to that deal, Australia enjoyed a unique position that many countries would crave:

  • a trade surplus with China.

  • That year, the country exported goods worth more than $80 billion to China while importing

  • nearly $47 billion, or a trade surplus of nearly $35 billion.

  • There was always that strong relationship, and it was just all of this political mess

  • that's happened in the past three years, that's put a dampener on the current relationship.

  • But then, signs of a fraying relationship and differing values began to emerge.

  • China claimed Australia had been discriminating against Huawei, by blocking its participation

  • in the country's 5G network in 2018.

  • Australia was the first country to ban Huawei, concerned that the Chinese tech giant would

  • divulge data to the government.

  • Huawei has repeatedly denied these claims.

  • There were a lot of little other things that

  • were happening on the edges at the same time, in terms of foreign investments being denied.

  • There were a number of big investment opportunities that Australia had turned down on the basis

  • of the foreign ownership laws here in Australia.

  • And that was before Huawei.

  • It's a catalyst, but it's not necessarily the only event that was happening at the same time.

  • The rift escalated when Australia joined other countries to demand further investigations

  • into the origins of the coronavirus.

  • What China was contending is that Australia would have given them a little bit of a heads up,

  • told them this is what we're planning to say.

  • And then obviously, China is going to be prepared for the media frenzy that's going to result from this.

  • China responded by placing tariffs and restrictions on Australia's major exports including seafood,

  • beef, wine, coal and barley.

  • These targeted exports were worth $25 billion in 2019, or 1.3% of Australia's GDP.

  • Still, the Australian government stood by its decision and even cancelled two deals

  • under China's Belt and Road Initiative.

  • China then hit back, accusing the government of having a 'Cold War' mindset, announcing

  • it would no longer engage in economic dialogue in May 2021.

  • So, when it comes to the official line, or the view of the Australian Government, what

  • they're saying is, we just want to get our Chinese counterparts on the phone, we want

  • to be able to have these frank discussions with them

  • and talk through the issues we are currently facing.

  • China isn't doing that. And they haven't done that for over a year now.

  • They won't discuss anything other than on the diplomatic level, so ambassador to ambassador.

  • Many of the targeted industries have been affected.

  • Since late 2020, the total value of Australian exports to China dropped by more than $10 billion.

  • As the economic pressure began to sink in, many Australian farmers pleaded with their

  • government to restore trade ties with China.

  • It was a wakeup call for Australian exporters to diversify, and many managed to blunt the

  • impact of China's trade pressure by opening new markets in the latter part of 2020.

  • Coal exports to the rest of the world, for example, were $9.5 billion higher than before

  • the ban, helped by offsets from new markets, notably India.

  • Even though the annualized value of Australian exports to China fell by $10 billion since

  • late 2020, overall, the annualized value of these goods to other markets rose by $14 billion.

  • So, Will what's next?

  • A lot of the tensions we're having with China plays well in the domestic front.

  • The path the government is on right now is to strengthen Australia's national sovereignty.

  • It's going to be a continual policy stance that's more in tune with the other Western nations.

  • Perhaps what's next for China is a softening.

  • We saw a couple of weeks ago Xi Jinping say he wants to soften China's stance when it comes to the rest of the world.

  • If enough of the other countries are going: 'Hey, wait a minute, we don't like where this is going,

  • because Australia may be one example but what if we're next?'

  • Australia is also counting on the World Trade Organization to act as a mediator, and to

  • calm the tensions that have brewed for more than five years.

  • But with both governments unlikely to back down soon, the trade war seems set to continue.

  • I gotta snap that, that was deep.

On March 30th 2021, the World Health Organization announced the results of an investigation

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How Australia and China’s trade relationship broke down | CNBC Explains

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