Should Australia be concerned by Beijing’s trade threats: modelling the economic costs of a restriction on imports of Australian coal

Abstract

A country’s economic dependence on its trade with various other countries is often expressed in terms of trade values and shares. A country’s vulnerability to economic coercion by the countries with which it trades is similarly expressed in such terms. Using the recent issues relating to Australia’s coal trade with China as an example, we propose a better framework for assessing vulnerability to coercive trade instruments. We argue that the capacity for a given export trade to fund real consumption is a superior indicator of economic vulnerability than the simple value of the underlying trade flow. Our framework takes account of trade diversion, foreign capital ownership, the terms of trade, resource mobility, and capital and production tax rates. Using this framework, we demonstrate that the damage from trade sanction is far less than might be expected from a simple focus on the value of the affected trade flow alone.

Key Challenges and Strategies Towards a Sustainable Business Environment by 2030

“…Particularly, relationships between countries and companies are pivotal in the Chinese cultural background (Lin et al, 2018;. For example, the recent trade war between the Chinese government and the Australian one led to many Australian industries, such as those involving coal, wine, and copper ores, be hit by Chinese import restrictions (Giesecke et al, 2020). The three main economies (China, the US, and India) will be more noticeably distinct from any others (Manyika et al, 2017;World Economic Forum, 2020), especially when considering technological progress and its impact on society.…”

COVID-19 and Global Beverage Markets: Implications for Wine

“…products are much higher than for wine, however, since they are far more homogeneous: in each case, the average price of Australian exports to China is very close to the average price of Australian exports to the rest of the world. Studies using global computable general equilibrium models to analyze China's sanctions on those two products have shown the effects on prices and total trade to be relatively modest (Cao and Greenville, 2020;Giesecke, Tran, and Waschik, 2021).…”

When China strikes: Quantifying Australian companies' stock price responses to China's trade restrictions

“…China unilaterally imposed trade restrictions on Australian barley, beef, coal, cotton, timber, copper and wine in 2020 and 2021, providing a case for investigating a country's vulnerability when they rely heavily on a single market and access to that market is suddenly cut. These recent China–Australia trade tensions have received limited attention (Ferguson et al, 2022; Giesecke et al, 2021; Laurenceson, 2021; Wickes et al, 2021; Wittwer & Anderson, 2021; Zhou & Laurenceson, 2022). For example, Ferguson et al (2022) examine Australian market adjustments to China's trade restrictions.…”

“…For example, Ferguson et al (2022) examine Australian market adjustments to China's trade restrictions. Giesecke et al (2021) utilize issues related to Australia’s coal trade with China to propose a better framework for assessing the vulnerability of coercive trade tools. Laurenceson (2021) and Wickes et al (2021) assess Australia's costs from the China–Australia trade tension using a straightforward ‘cost guides’ method.…”