IF THUCYDIDES’ observation that the strong do what they can and the weak suffer what they must is true, then American allies are presumably in strife given that a belligerent Chinese Communist Party is increasingly resorting to coercive economic approaches to bludgeon smaller nations into submission. China’s gross domestic product (GDP) in nominal terms is about 60 percent larger than the combined GDPs of America’s five treaty allies in Asia—Japan, South Korea, Thailand, the Philippines, and Australia. Beijing spends more on defense each year than the rest of Asia and Oceania.

At the same time, China, in targeting Australia, is picking on a country with a population of under twenty-six million and with whom it has no territorial or historical disputes. What is Beijing trying to achieve and will it eventually succeed? Or will Aussie defiance harden the resolve of other American allies and partners to withstand Chinese coercion in the future?

There is some way to go before we know how it will pan out. But there are some signs that we are witnessing Chinese hubris and overreach rather than Australian contumacy or pigheadedness. Beijing’s malice is proving that the Trump and Biden administrations got it right in nominating China as the comprehensive challenge of their times. Importantly, Australia is showing that smaller nations still have agency and options and that it is no easy matter for China to cow liberal democracies into subservience.

IN A competition to choose the American ally most susceptible to Chinese economic coercion, Australia would be the leading candidate. Prior to the COVID-19 pandemic, Australia enjoyed twenty-eight years of consecutive economic growth, a record among developed economies. During turbulent economic events such as the bursting of the dot-com bubble earlier this century and the 2007–2008 Global Financial Crisis, its economy was buffeted by increasing exports to China and ever improving terms-of-trade (i.e., ratio of export prices to import prices.) By the end of 2020, more than one-third of every Australian export dollar was earned from the Chinese market. This meant Australia had become the most China-reliant advanced economy in the world from a trading perspective. 

Digging deeper only emphasizes Australia’s dependency. It is primarily a commodities exporter of minerals, energy, and agricultural products. In 2020, iron ore, coal, and natural gas made up almost 44 percent of all exports with most of these commodities being sold to China. With respect to Australian iron ore, which is the country’s top export earner, about 80 percent of earnings come from China. Even when it comes to leading export services such as education and tourism—8 percent and 5 percent respectively of total exports—Chinese students and visitors are the largest revenue source for these two industries.

The assumed Australian economic vulnerability to Chinese coercion also stems from the fact that while Beijing is Australia’s largest trading partner by some distance, the reverse is not true. While more than one-quarter of the value of Australian two-way trade—imports and exports—is with China, the latter’s two-way trade with Australia is less than 2 percent of its total trade. The tyranny of these numbers suggests Beijing has leverage: trade with China seems to matter much more to Australia than the reverse.

Leverage is one thing. Willingness to use it is another. In this regard, Beijing has form. According to a count by the Australian Strategic Policy Institute, China has used “coercive diplomacy” more than 150 times against foreign governments and firms since 2010. These mainly involve threatening or carrying out investment and trade restrictions in addition to encouraging popular boycotts. The restricting of rare earth exports to Japan in 2010 following incidents in the East China Sea and the targeting of South Korean firms in 2016 due to Seoul’s decision to participate in the American-led Terminal High Altitude Area Defense (THAAD) anti-missile program are well known.

However, more than half of the instances of Chinese coercion have occurred over the past two years. And most of these instances are being directed against Australia. Since 2018, China has refused to accept cabinet-level meetings with Australian counterparts, and for the past year is refusing to even accept phone calls. Since 2020, Beijing has imposed punitive measures against Australian barley, coal, timber, beef, cotton, sugar, copper, wool, lobsters, wine, and liquefied natural gas. These export sectors bring in around $15 billion a year from China. State authorities have issued arbitrary travel and safety warnings to Chinese students hoping to study in Australia.

While the loss of income from the Chinese measures is difficult to accurately quantify given opportunities subsequently opening up in other markets, they already amount to at least hundreds of millions of dollars. As it is estimated a total trade ban imposed against Australia would amount to around 6 percent of GDP, the imposition of selective punitive measures and the threat of more to come creates profound apprehension in the country. It is also the cascading series of measures which are unsettling.

AUSTRALIA IS not the first, and will not be the last economy, to endure Chinese displeasure. It is also arguable that the economic pain inflicted on South Korea after Seoul installed the THAAD anti-missile system was worse. This is not to ignore the distress for those businesses unable to find alternative buyers for products such as lobsters, timber, and wine. But for the moment, the value of Australian exports to China has increased to record levels due to high iron ore prices and its seemingly insatiable demand for the commodity. Until Chinese-funded mines in the Western African country of Guinea start producing significant amounts of high-quality ore, which is perhaps a decade away, the Australian economy might have more breathing space than is widely assumed.

What then explains the unusual international interest in China punishing Australia if Beijing has done similarly to other nations? For a start, Beijing is using a very different approach when it comes to the diplomacy and strategic messaging accompanying the measures against Australia. There is no doubt that previous coercive economic moves against countries such as Japan, the Philippines, and South Korea were punishment for policies taken by these countries over disagreements regarding the East and South China Seas and a decision to install the THAAD anti-missile system, respectively.

However, Beijing left itself room to deny there was any link between decisions made by these countries and the punitive measures. For example, the rare earths restrictions against Japan were attributed to a Chinese decision to reduce the domestic processing of rare earths for environmental reasons. Boycotts against South Korean firms were said to be initiated by angry Chinese citizens rather than the Communist Party. Filipino bananas were banned on the basis that pests were found by Chinese quarantine inspectors. In all these and other cases, Chinese state-owned media publishers and outlets made it clear that these countries had offended Chinese interests and feelings and that the disruptive effects of the apparently unrelated measures were nevertheless timely and deserved.

This artifice, initiated and coordinated by the Communist Party, allowed Beijing some degree of deniability even if it was hardly plausible. But deniability decreased the chances of any country winning a favorable determination against China through World Trade Organization dispute mechanisms or the victim successfully arguing that China was in violation of bilateral or regional trade agreements. The allegedly non-governmental basis for punishment also meant additional arbitrary measures could be added on, thereby creating a sense of heightened apprehension amongst other vulnerable sectors that they could be next. Perversely, the impossibility of irrefutably proving that these were state-based instances of economic coercion created room for pro-Chinese lobby groups within the victim countries to put the blame on their government for mismanaging the relationship with Beijing as there was no formal finding of Chinese illegality. It also becomes more difficult for other countries to condemn Beijing’s actions in the absence of an official verdict of illegal behavior. If it could not be proved that Beijing did anything illegal, then better to stay out of the fray.

The targeting of Australia is different. To be sure, the old playbook was adhered to initially. During the time I served in the Australian government from 2016–2018, Chinese officials were constantly warning of “unspecified consequences” for Australian positions on issues such as criticizing Chinese policies in the South China Sea and moving to ban Huawei from the country’s 5G network. This was always done behind closed doors. At the same time, state-owned newspapers such as the Global Times would act as a proxy for Beijing by running editorials warning that Australia would suffer from its increasingly “anti-Chinese” policies. 

The Chinese approach changed from 2020 onward. In April of that year, Beijing’s ambassador to Australia, Cheng Jingye, publicly suggested Chinese citizens might grow reluctant to study, travel, or consume Australian wine as the country was not “so friendly to China.” The following month, four major Australian beef exporters were banned indefinitely for  “repeated violations of inspection and quarantine violations” according to a notice issued by Chinese customs. In June, China’s Ministry of Education issued an alert to Chinese students planning to travel to Australia due to supposed “racially motivated incidents targeting Asians in Australia.” In August, China launched an anti-dumping investigation into Australian wine imports. The point is that while none of these individual decisions were explicitly portrayed as punitive measures as payback for Australian policies, the forewarning by the Chinese ambassador was issued beforehand to make it clear Australia was being economically punished for the policies of its government and Beijing was behind it. 

One needs to live in Australia to appreciate the constant barrage of national insults and economic threats which began in late 2019 and are ongoing. Importantly, these were not just issued by Chinese state media outlets but by high-ranking Chinese officials in Beijing and Canberra. An extraordinary decision by Beijing was made in November 2020 when its embassy publicly issued a dossier of Fourteen Grievances against Australian government policy as explanation for the poor relations and justification for the economic punishments against Australia. These include predictable complaints such as Australia’s overt criticism of Chinese policies regarding the South China Sea, Hong Kong, Taiwan, and Xinjiang. But most concerned domestic policies and legislation, such as laws passed to prohibit foreign interference in domestic institutions. The dossier also included Australia’s refusal to endorse the Belt and Road Initiative, decisions to ban certain foreign investments and acquisitions by Chinese entities, banning Huawei and ZTE from the Australian 5G network, funding think-tanks critical of the Communist Party, and the Scott Morrison government calling for an international inquiry into the origins of covid-19.

Although no one is surprised that Beijing is critical of these Australian policies, it is unprecedented for the Communist Party to abandon all cover of deniability and confirm that political decisions made by the Communist Party are responsible for the economic punishments on countries. Additionally, the fact that most grievances pertained to domestic rather than foreign policy demolished arguments still making the rounds in Australian and regional debates that repairing the bilateral relationship requires only that China be respected, left to tend to its own internal affairs without suffering opprobrium, and given the strategic space in its periphery owed to all great powers. As the dossier confirms, economic coercion is at the heart of Chinese statecraft and Beijing is punishing Australia for the latter refusing to give the former a right to directly shape or else veto governmental policy that affects Chinese interests, even if that policy is fundamentally domestic in nature.

TO PLACE Australia’s current plight in a broader geopolitical and strategic context of relevance to America and its evolving Indo-Pacific Strategy, one must further explain why China is singling out Australia for unique treatment given relations are also souring with other democracies.

It is widely known and understood that an important element of Beijing’s grand strategy is to dilute the effectiveness and credibility of American alliances and security partnerships in the region. Doing so reduces America’s capacity to maintain its regional strategic presence and influence, which will then make it much easier for Beijing to compel increasingly anxious and insecure states to accept a more subservient position vis-à-vis China. This is the setting within which China has expended considerable efforts and resources since early this century to groom and seduce Australia—a formal treaty ally and member of the Five Eyes intelligence network. 

Indeed, the signing and ratification of the 2015 China-Australia Free Trade Agreement remain the most comprehensive economic agreement China has signed with any advanced economy. It is arguable that the innocuously sounding United Front Work Department (UFWD), a vast and well-resourced entity whose purpose it is to build the Community Party’s legitimacy at home and incentivize Chinese diasporas in other countries to advance Beijing’s interests, is more active in Australia than in any other allied nation. Communist Party entities have invested considerable amounts in Australian media assets to produce content sympathetic to Communist Party objectives. The purposes behind these and other activities are to create permanent and powerful entities within Australia who can be relied upon to advocate for Chinese interests. All this was accompanied by Beijing’s relentless promotion of the narrative that China’s rise and America’s decline is inevitable, the People’s Liberation Army is undeterrable and will pay any price to achieve its objectives, and China was issuing a special and never to be repeated offer for Australia to strike a fair but accommodationist bargain with its largest trading partner before it is too late.

This goes some way to account for Chinese rage in that the considerable sunk costs of the Australia project did not result in the country’s Finlandization. Contrary to these expectations, Canberra has become a serious thorn in the side for Beijing. For example, Australia was the first country in the world to formally ban Chinese firms from its 5G infrastructure and to properly confront the growing menace of UFWD activities through passing legislation prohibiting interference and the exercise of covert influence by foreign entities. Canberra’s willingness to engage the nation in a public conversation about UFWD activities was especially infuriating for Beijing. Doing that involved shining a light on the insidious nature of Communist Party intentions to a national and global audience. It embarrassed the Communist Party by lifting the veil on a vast and global intelligence operation involving the co-opting of Chinese diasporas around the world. 

To Beijing’s further dismay, these Australian actions have encouraged North American, European, and Asian democracies to consider similar policies. It is why the Chinese Embassy’s Fourteen Grievances and editorials in state-owned publications continually decry Australia for being an “upstart,” “ungrateful,” and becoming the “leader of the pack” in spreading anti-Chinese policies and sentiment.

Additionally, Australian strategy is refusing to stand still or remain on the sidelines as China continues to expand its military and political presence and menace beyond its immediate periphery. Its 2017 Foreign Policy White Paper expressed a desire to work with other democracies to achieve a favorable balance of power. The 2020 Defence Strategic Update and 2020 Force Structure Plan committed Australia to help shape the strategic environment, deter potential enemies, and respond to important threats. Importantly, these documents pledged significant resources to develop military assets such as long-range and hypersonic missiles, unmanned vehicles, and offensive cyber capabilities in addressing unnamed state-based threats. It is an open secret that it is almost all aimed against China.

Beijing is also aware that this is about more than Australia making a defiant stand against the odds. It is about increasing Australia’s role and ability to work with America and others to achieve an effective check against China in all forms: from the military balance to blunting the geostrategic aims of the Belt and Road Initiative, from creating resilient and secure supply chains that do not depend on China for critical and strategic sectors to elevating groupings that can promote agreement between democracies such as the Quadrilateral Security Dialogue and Five Eyes intelligence network.

CHINESE ECONOMIC punishment of Australia is increasingly driven by rage and resentment. But it is also pernicious statecraft for a Communist Party able to force domestic institutions, media, firms, and citizens to respond to its demands. The point of economic coercion is not to cripple the entire Australian economy, as this is beyond the powers of the Communist Party, but to heighten national anxiety and encourage political, business, and community entities and prominent individuals to criticize the government’s management of relations with China. The ultimate objective, as the Fourteen Grievances makes clear, is to compel the government to change its policies. 

The brutal nature of international politics suggests that the proverbial David rarely prevails over Goliath. Yet, the Australian case study should warm American hearts. There is a strong case that China has overreached and that smaller but successful democracies have far more agency and options than is widely appreciated.

First, the national conversation about the menace of the Chinese Communist Party in the region and on Australian soil did not frighten the country into submission. On the contrary, it has convinced growing numbers of political, business, and community stakeholders that the cost of doing nothing and allowing the Chinese Communist Party free rein is too great. This is evident in all surveys and anecdotal encounters with Australians who are increasingly critical of Beijing. This increases Australian political and psychological preparedness to absorb pain and disruption, making it harder for Beijing to achieve its objectives through economic coercion.

Second, necessity is the mother of invention. The imposition of economic punishments has forced Australia to reassess its economic relationships and markets—something which might have occurred naturally but over many years and decades. The Chinese restrictions and bans are fast-tracking the exploration of alternative markets and economic partners, including with largely untapped economies such as India and older partners such as the United Kingdom and the European Union. It may be that the Chinese market was a once-in-a-lifetime boon for the local economy. But Australian businesses are more serious about looking to other markets than has been the case for the past three decades. Events have given a shot in the arm to hitherto drifting national conversations about necessary reforms to invigorate manufacturing and the development of new technologies.

Nor is this all. Chinese actions are forcing the country to give greater thought to reimagining economic globalization. This includes the importance of secure supply chains and greater emphasis on the importance of trust between economic partners—which will only tend to occur when they have similar interests and institutions. This is leading to better alignment between strategic and economic interests. All are part of a broader conversation about national economic resilience which was long overdue. Other democracies are thinking about similar issues but the economic pressure being heaped on Australia is causing the latter to think and act more rapidly. 

Third, the fact that Australia has not been brought to its knees by its largest trading partner has a powerful demonstration effect for other democracies, something which Beijing was desperate to prevent. It is important to remember that it is not just a balance of power which matters in international politics but a balance of resolve. Beijing’s overreach and Canberra’s pluckiness have been significant in this respect. We might still be some time away from the Five Eyes countries adopting a collective economic security measure analogous to the North Atlantic Treaty’s Article V. This would be an agreement such that any economic coercive measures levied against one member demand a collective economic and diplomatic response. But the fact that the Biden administration made it clear to China in March that ending the punishments against Australia is a precondition for improved relations with America demonstrates collective resolve amongst allies is deepening. Indeed, a g7 joint statement in June of this year took the unusual step of directly criticizing Chinese actions, including its coercive non-market economic policies.

IT IS likely there will be further pain for Australia and future punishments applied to other allies with the temerity to pursue policies contrary to Chinese interests. It is also clear America and its allies are in for a long struggle against a Chinese state willing to use all tools of national power for its advantage. One is reminded of the quote, possibly apocryphal, attributed to Lenin: You probe with bayonets. If you find mush, you push. If you find steel, you withdraw. Beijing may not withdraw, but it is being reminded that it is in a struggle—and increasingly outnumbered.

John Lee is a senior fellow at the Hudson Institute and United States Studies Centre, University of Sydney where he is an adjunct professor. From 2016–2018, he served as senior national security adviser to the Australian foreign minister.

Image: Reuters.