Australia Provides Example that Decoupling from China is Possible

The resilience that Australia has shown against China’s economic retaliation has likely been a major surprise for the CCP. Instead of weakening Australia it has actually strengthened and embolden the country to stand up even more against CCP human rights violations, economic coercion, and territorial expansion:

If the scale of China’s trade coercion against Australia is unprecedented, it also offers an intriguing experiment: What does a sudden economic decoupling from China look like? With China accounting for nearly 40 percent of Australian exports, one might assume the costs of Canberra’s defiance would be grave.

But in fact, the effects have been surprisingly mild. The reason is trade diversion: When a trade barrier is erected, businesses seek alternate outlets for their products. In open international markets, the outcome is rarely the destruction of export industries. Most of the time, trade flows adjust around the barrier.

Coal provides an illustrative example. Once China banned imports of Australian coal in mid-2020, Chinese utilities had to turn to Russian and Indonesian suppliers instead. This, in turn, took Russian and Indonesian coal off the market, creating demand gaps in India, Japan, and South Korea—which Australia’s stranded coal was able to fill. What’s more, the global energy crunch has pushed up the price of coal, leading Australian coal producers’ export earnings to rise this year—not exactly the effect China had in mind. 

Foreign Policy

You can read more at the link, but for a commodity based economy like Australia has, it is easier to decouple from China. However, for countries that have tech and manufacturing relationships with China it will be harder to decouple because new factories have to be built and new skilled workers have to be trained elsewhere. This would likely be a multi-year process. However, if countries don’t start this process now they could find their economies compromised if China threatens to close them as part of economic pressure to coerce governments to side with them during any future conflict over the South China Sea for example.