Flat White

Sun Tzu and the Art of Trade

9 December 2020

5:00 AM

9 December 2020

5:00 AM

Around 2,500 years ago, Chinese general and strategist Sun Tzu wrote his masterpiece, the Art of War.  This treatise is mandatory reading for Chinese officials.  Australian officials and commentators should also read it because, as the opening paragraphs state, “[T]he art of war is of vital importance to the State.  It is a matter of life and death, a road either to safety or to ruin.  Hence it is a subject of inquiry which can on no account be neglected.”   

Relations between Australia and China are at all-time lows.  Following a number of recent trade injunctions, a Chinese foreign ministry spokesman last week tweeted a faked image of an Australian soldier with a knife to the throat of an Afghan child.  Three weeks earlier, the Chinese Embassy in Canberra released a list of 14 disputes the Chinese government has with Australia.  Notable about this list is not what is included.  What is notable is what is not included. 

While relations between China and Australia have been poor for a while, recent escalations signal something deeper.  And the timing implies that a large part of China’s deep displeasure with Australia may be Australia’s participation in the Quad; an important issue not scheduled in the Chinese Embassy’s list of 14. 

The Quadrilateral Security Dialogue, better known as the Quad, is a strategic grouping of Australia and China’s three main geostrategic competitors, the US, Japan and India.  Initially formed in 2006, the Quad has essentially been dormant since 2008 following the Rudd Government’s withdrawal.  Its resuscitation commenced in 2017. 

Each recent Chinese trade or diplomatic escalation has followed an Australian government Quad related engagement. The Chinese tariffs on Australian wine and the Twitter images followed shortly after Prime Minister Morrison travelled to Japan to finalise the Reciprocal Access Agreement.  China’s November interruption to Australian timber, barley and lobster exports followed shortly after Foreign Minister Payne attended, also in Japan, of a meeting of the Quad foreign ministers. 

Researchers from the Rand Corporation have suggested that “the Quad signals unified resolve among these four nations to counter China’s growing assertiveness in the Indo-Pacific.”  An unstated consideration of the Quad must certainly also be Taiwan, the world’s largest producer of advanced semi-conductors, and the Taiwan Strait through which much international trade passes. 

China appears to have determined that Australia is in the most vulnerable to influence in this group because of our trade vulnerabilities.  Some 39% of Australian exports are sold to ChinaThis includes 100% of nickel ore, 83% of iron ore, 95% of timber and 77% of wool exportsIn 2019 alone, Australian exports to China were worth $169 billion.  Conversely, only 2% of Chinese exports are to Australia, and this includes 90% of Australia’s merchandise imports.  This trade imbalance gives China particularly powerful leverage over Australia to try to (again) break the Quad. 

China, as the world’s largest economy and the largest trading partner of nearly every major nation, often uses trade as a tool of its foreign policy.  And in its application, China is very strategic. 

In 2018, when China applied trade sanctions to US soybean farmers it did so in the knowledge that soybean producers were in politically sensitive electorates soon before US congressional and senate elections.  Similarly, in Australia, China’s trade actions have targeted politically sensitive and influential agricultural producers.  Chinese sanctions do not seem to have (yet) been applied to Australian iron ore, Australia’s largest export to China and the Australian dollar does not (yet) seem to have been impacted. 

Well before announcing tariffs on Australian wine, but following previous Chinese trade actions, there were quiet international discussions of an Economic Article 5 to counter China.  Article 5 is the section of the North Atlantic Treaty which considers an attack on one member state as an attack on all member states.  Thus last week, the Inter-Parliamentary Alliance on China has called upon supporters to “stand against authoritarian bullying” and have launched a campaign to support Australian wine producers

While the world seems focused on China’s behaviour towards Australia, a closer look suggests that the bigger game may be closer to China’s borders.   

China built its Great Wall to protect itself from encirclement.  China would view the Quad as an encroachment on its sphere of influence with India to its east, Japan to its north, the US to its east and Australia to its south.  China is exceptionally sensitive to its century of humiliation and would no doubt feel threatened.  A tighter bonding of the Quad may perversely force China’s hand on Taiwan to create a strategic buffer.  Much like both North Korea and China’s Great Wall of Sand provide. 

In navigating through these turbulent waters, the Australian government should also bide the advice of Sun Tzu who suggests that, “[I]f you know the enemy and know yourself, you need not fear the result of a hundred battles”.  

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