Greetings, pioneers!
As I sit back in my leather armchair, my attention is firmly on the recent development between Australia and China.
The two nations have decided to simmer down their simmering trade feud.
Now, conventional wisdom might tell you that a smaller economy, like Australia, would be at the mercy of an economic titan such as China.
But the recent truce proves a different narrative.
Three years of economic tug-of-war, all because of… well, a myriad of reasons including Huawei’s exclusion, human rights issues, and the call for a transparent investigation into the pandemic’s origin.
It seemed for a while there, China had the upper hand, turning the screws on Aussie imports ranging from wine to coal.
But in a surprising twist, Beijing is letting up on the pressure.
This development gets one thinking: How potent really is China’s weapon of “economic coercion”?
From the recent turn of events, and diving into the technicalities of the trade numbers, I’d say – not as potent as one might think.
Sure, China is an economic behemoth.
But as Darren Lim of the Australian National University rightly pointed out, almost every nation that has experienced this ‘economic arm-twisting’ has weathered it without making significant political concessions.
It’s akin to surviving a storm: batten down the hatches, weather it out, and sail into clear waters.
Australia’s strategy was no different.
While certain sectors faced the brunt, like the wine growers, others simply shifted their horizons.
This shift was largely aided by surging commodity prices and China’s dependency on Australian iron ore.
The result?
Australian imports touched a whopping $162 billion in 2021.
However, the unintended (or perhaps, intended?) outcome of China’s actions was the global spotlight it shone on its economic arm-twisting tactics.
This has led major economies to rally against it, forming coalitions and protective instruments.
The European Union’s “anti-coercion instrument” stands out as a robust countermeasure.
The real wit here is the strategic bond Australia has forged with the US, be it in submarine development or military exercises.
It’s almost poetic – in trying to push Australia away, China might have pushed it closer to another.
But one must ponder: while Australia has held its ground, will other nations show the same resilience?
Countries like Singapore, Malaysia, and Thailand might be more vulnerable to China’s economic pressure tactics.
There’s a lesson here for small and mid-sized economies: diversify and create alternate strategies, or risk being a pawn in the larger game.
Now, for the investors and financial enthusiasts reading this: there’s potential to capitalize on this situation.
A keen eye should be kept on the commodities market, especially iron ore.
Given the geopolitical dynamics, nations will be keen on securing their supply chains.
Moreover, sectors in Australia that faced Chinese restrictions could now see a boost – think wine and coal.
As we step into the new year, one must be aware that while trade truces are a respite, they are not a solution.
The China-Taiwan dynamics could be the next flashpoint, especially with the island nation’s upcoming presidential election.
It’s crucial for businesses and governments to be prepared for sudden shifts in China’s trade stance.
As the old adage goes, “Hope for the best, but prepare for the worst.”
Signing off, pioneers, with this nugget of wisdom: in the world of economics and geopolitics, it’s not always about size and might, but strategy and foresight.
To more informed investments,
Peter Burke.
