Both Australia and China will now look to de-escalate tensions after trading barbs over the past two days, according to senior sources within the Australian government.
Australia is trying to keep the dispute in perspective with China dealing with blow-back across the world over its “wolf warrior” diplomacy. Last week alone, at least seven Chinese ambassadors – to France, Kazakhstan, Nigeria, Kenya, Uganda, Ghana and the African Union – were summoned by their hosts.
The Chinese Communist Party and its foreign missions have been increasingly assertive in their rhetoric in an attempt to cast the coronavirus as a global challenge while deflecting any responsibility for the crisis.
Chinese state media launched a series of attacks on Tuesday. The People’s Daily, which has not criticised Australia in two years, accused a “deeply troubled” Morrison government of blaming China for its domestic failures while it tried to please the United States by being “a bully in the region”.
The Global Times said Western media had hyped up and misquoted claims of “economic coercion” by pointing to Mr Cheng’s transcript of his interview with The Australian Financial Review. The transcript purports to show the ambassador stating he hoped there would be no economic consequences for Australia.
The tit-for-tat has led to souring political relationships but new research from the Australian National University shows the impact on trade is likely to be minimal.
Covering more than two decades of monthly trade data between China and its major partners including Australia, India, Japan, South Korea and the United States, Crawford School of Public Policy researcher Vishesh Agarwal found the impact of a diplomatic spat on trade lasted three months before normal levels of trade resumed.
The period from 1998 to 2018 included US military conflict, territorial disputes in the South China Sea, former prime minister Malcolm Turnbull’s ban on Chinese telco Huawei and the Australian introduction of foreign interference laws.
“For most cases, the general finding of either insignificant or small and short-lived effects of conflict shocks on export growth holds,” Mr Agarwal said.
“Australia shows significant effects [a drop of 1.64 per cent] when the Political Relations Index is measured using government conflict, but these effects dissipate three months after a shock.”
Mr Agarwal said the results suggest that China and its major partners play “a forgiving grim-trigger strategy” in response to increasing conflict.
Jane Golley, the director of the Australian Centre on China in the World, said the research showed there was a minimal relationship between political and trade outcomes.
“The economist could look at this and say ‘great, the political relationship doesn’t matter we can continue to poke them and it doesn’t matter, the trade will keep trading’,” she said.
“But even if the numbers say that we will keep trading in aggregate that doesn’t mean certain sectors like wine won’t suffer. It also doesn’t mean that in the future the Chinese government won’t resort to coercive methods if that is the only option left to them.”
The government views Australia’s largest export to China, resources such as iron ore and coal, as low risk because they power China’s economy. Universities, which hundreds of thousands of Chinese students have already committed to study at for at least three years, are also less exposed. They are less likely to have long term restrictions given the strong education agent market in China and ongoing tensions with Australia’s higher education competitor, the United States.
Agricultural exports could be more susceptible to consumer boycotts if a strong anti-Australian sentiment takes hold, but this was more likely to be driven by individual consumers.
Professor Golley said Chinese people could choose not to buy from Australia because they thought they were being mistreated.
Tourism is the most exposed of the export industries with 1.4 million visitors to Australia from China last year.
The Chinese Communist Party used coercive tactics against its neighbours in South Korea and Taiwan in 2017 and 2019 by cutting off tour groups.
“There are definitely mechanisms there but increasingly they travel independently,” said Professor Golley.
Eryk Bagshaw is an economics correspondent for The Sydney Morning Herald and The Age, based at Parliament House in Canberra
Anthony is foreign affairs and national security correspondent for The Sydney Morning Herald and The Age.