As Australia’s diplomatic relationship with the People’s Republic of China (PRC) remains locked in a tense standoff with unclear prospects for reconciliation, the economic relationship – which has hitherto served as ballast for the broader bilateral relationship – also finds itself navigating increasingly uncertain waters. The imposition of a series of trade restrictions by the PRC government come amidst an ongoing debate in Australia about its trade exposure to the PRC and a backdrop of record-low levels of PRC investment in Australia. Recently, for example, the Australian Treasurer blocked a proposed $600 million acquisition by Chinese-owned Mengniu Dairy company of the Japanese-owned, Australia-based Lion Dairy and Drinks, the second largest milk processor in Australia, despite the deal having gained approval from the Foreign Investment Review Board.
Will economic complementarities prevail or is mutual trust so damaged that Beijing and Canberra are now agnostic about the direction of economic ties or even supportive of moving towards greater decoupling? What are the prospects of a wider trade and investment war between Australia and the PRC? With a PRC anti-dumping investigation in train, are tariffs on Australian wine almost certain, and are there any areas where Australia will still welcome PRC investment? Do the business sectors in both countries retain any ability to influence government decision-making? Does the COVID-19 pandemic focus policy-maker attention on the much-needed benefits from trade and investment or rather on the risks stemming from interdependence?