In 2020 China applied sanctions against 13 Australian industries including coal, education and tourism, but the agricultural sector has been especially targeted, with eight agricultural commodities subject to formal or informal trade barriers. It is widely accepted that the measures were taken in retaliation to Australia’s policy posture towards China, expressed in a list of 14 grievances from the Chinese Government. China accounts for 32 per cent of Australian agricultural exports.

While the trade barriers are widely reported, they leave a series of unanswered questions. Why is China targeting particular industries with particular instruments? What are the costs of the barriers for Australia and China? What are the drivers from within China? How can Australia realistically respond?

The framework of economic coercion helps answer the questions. In a simplified version of the framework, a coercive State takes economic measures to change the behaviour of another State. The industries and instruments selected are designed to impose high costs on the target State, but only to the extent that this does not impose prohibitively high costs on the targeting State. The measures may even benefit the targeting State. The cases of wool, barley and wine illustrate the way these calculations have played out.

Key points:

• In response to a wide-ranging suite of Australian policies, China has imposed a wide-ranging suite of economic sanctions on Australian exports in 2020, targeted especially at agricultural exports.
• In the fast-moving events, the framework of economic coercion helps understand the logic of China’s trade barriers and helps Australia to formulate a response.
• China’s economic coercion aims to impose high costs on targeted Australian industries, or encourage Australian industry interests and political opponents to lobby the Federal Government to change policy towards China. The Australian system has generally proved resilient.
• China has also selected trade barriers that reduce costs for China, or indeed bring long-term strategic benefits including the protection of local industry and import diversification.
• The coercion and protectionism stem from deep-rooted and ominous trends in China. Australia is not responding through retaliation (i.e. a trade war) but by appealing to law and through economic diversification.