In a speech on September 6, Australian Treasurer Josh Frydenberg discussed Australia-China economic relations. Acknowledging that Australia is on the "frontline" of strategic competition, he highlighted that the Australian economy is "remarkably resilient" and that it has a "deep trading relationship with many other countries."

He began the speech by stating that "there can be no doubt that strategic competition is back." He noted the "the re‑emergence of China and its rapidly growing economic weight," which "has helped to lift more than 800 million people out of poverty and been a major contributor to global economic growth and prosperity," but has also led to "[a] more confident and assertive China" that "is willing to use its economic weight as a source of political pressure." He said that "Australia is facing this pressure more sharply than most other countries," but explained how Australia was looking for new markets to deal with any losses resulting from increased China-Australia tensions, including exploring new trade agreements.

The full speech is here. A partial transcript is below.

When asked about this speech at a press conference, a China Foreign Ministry spokesperson stated in part:

... Australia has benefited immensely from its cooperation with China and is a beneficiary of China's development. China has never done anything detrimental to Australia's sovereignty. The label of so-called "economic coercion" can never be pinned onto China. Instead, it is Australia that stands guilty of the following. It has taken measures against market principles and even bullying acts, and imposed restrictions on normal exchanges and cooperation between the two countries without cause, disrupting the good momentum of bilateral practical cooperation. Meanwhile, it has played the victim to put the blame on China, ganged up to pressure China, and grossly interfered in China's internal affairs and harmed China's core interests in violation of international law and basic norms governing international relations.

Josh Frydenberg, Building Resilience and the Return of Strategic Competition, September 6, 2021

The return of strategic competition

Firstly, there can be no doubt that strategic competition is back.

It is a defining feature of the economic and security landscape we face.

Those that advocated ‘The End of History’ in the early 1990s have been proven wrong.

In March this year, US Secretary of State, Antony Blinken, said that America’s relationship with China represents the “biggest geopolitical test of the 21st century”

He further noted that the US relationship with China will be “competitive when it should be, collaborative when it can be, and adversarial when it must be”.

This is a very different global environment to that faced by recent Australian Governments.

It is a far cry from October 2003, when President George Bush and President Hu Jintao both addressed the Australian Parliament in successive days.

We have all witnessed the major shifts in global economic weight over recent decades.

Defined by the re‑emergence of China and its rapidly growing economic weight.

This has helped to lift more than 800 million people out of poverty and been a major contributor to global economic growth and prosperity.

But more recently, it has also been defined by another feature.

A more confident and assertive China.

A China that is willing to use its economic weight as a source of political pressure.

It offers economic ‘carrots’ through initiatives such as the Belt and Road.

And it threatens economic consequences for perceived misdeeds.

The Australian Strategic Policy Institute (ASPI) noted recently that China had used coercive tactics 152 times between 2010 and 2020, against 27 individual countries as well as the EU.

China is also tightening its control over its business sector, at home and abroad.

We have faced strategic competition before, including during the Cold War.

But there are important differences this time around.

Most notably our highly integrated global economy and trading system.

During the Cold War, the Soviet Union was largely cut off from the rest of the world.

It did not trade or invest much outside of its sphere of influence.

Its investment and trade with the US was negligible.

Contrast this to the present day.

The IMF estimates that China’s share of global GDP will increase to 18.8 per cent in 2021, up from just 7.7 per cent in 2001.

China became the world’s largest exporter of goods in 2009. And by 2019, it accounted for over 13 per cent of global exports.

In 2001, the year that China joined the World Trade Organisation, more than 80 per cent of countries had a larger volume of trade with the US than with China.

By 2018, this figure was down to only 30 per cent.

Almost 130 countries now have China as their largest trading partner.

This combination of economic weight, global integration and assertiveness poses new and significant challenges for many countries around the world.

And Australia is no exception.

Indeed, Australia is facing this pressure more sharply than most other countries.

Australia is on the frontline of strategic competition, but highly resilient

China is our largest two‑way trading partner, accounting for over 30 per cent of our trade.

And the scope of our trading relationship has broadened over time.

Evolving from mining, to agriculture, to services such as tourism and education.

As I am speaking at an ANU forum, I should note that despite the COVID‑19 disruption, China remained our largest education export market in 2020, at $7.6 billion.

In many ways our economies are complementary.

Ensuring the economic relationship is mutually beneficial.

However, it is no secret that China has recently sought to target Australia’s economy.

Citing fourteen so‑called ‘grievances’, covering everything from our foreign investment laws to our willingness to call out cyber‑attacks.

They have targeted our agricultural and resources sector, with measures affecting a range of products, including wine, seafood, barley and coal.

We have remained steadfast in defending our sovereignty and our core values.

And we always will.

As Foreign Minister Marise Payne has said “that does not mean we are anti‑China or anti any other country. It means we want all countries to operate by the rules that protect our shared interests”.

But in the face of this new reality, our economy has also proven to be remarkably resilient.

Despite China’s wide‑ranging actions, our economy has continued to perform very strongly.

At the headline level, this is best reflected in our unemployment rate, which has fallen to 4.6 per cent. The lowest level in around thirteen years.

Our headline trade performance has also been strong, boosted by record commodity prices.

Indeed, our trade surplus hit a record high in the June quarter of $28.9 billion.

I am not downplaying the impact of China’s actions.

They have hurt specific industries and regions, significantly in some cases.

Nevertheless, the overall impact on our economy has, to date, been relatively modest.

This is perhaps surprising to many.

But it is worth noting that our exports to China of targeted goods accounted for just 5.9 per cent of our total exports in 2019 and 1.2 per cent of nominal GDP.

And while China is easily our largest trading partner, we also have deep trading relationships with many other countries.

Our two‑way trade with the US was worth around $73 billion in 2020.

Our trade with Japan was worth around $66 billion.

And our trade with South Korea was worth around $35 billion.

To name just a few.

And our largest contributor to foreign direct investment is the United States.

China is only our sixth largest source of foreign direct investment.

And this investment has fallen by around 5 per cent since 2019, in line with a broader decline in overseas investment from China overall.

We are also continuing to pursue new free trade agreements.

To deepen our existing relationships and open‑up new and growing markets.

We have agreed on the broad outlines of an Australia‑UK FTA.

This will see 99 per cent of Australian goods, including wine, enter the UK duty free.

Our Comprehensive Economic Partnership with Indonesia entered into force in July last year, creating new export opportunities in a large and fast‑growing market.

And the Comprehensive and Progressive Trans‑Pacific Partnership (CPTPP) includes specific measures to help make it easier for small businesses to establish new export markets.

This includes common and transparent trade rules to cut administration costs.

Many of the firms and industries targeted by China’s trade restrictions have also been successful in re‑directing goods to other export destinations.

This is particularly the case for larger bulk commodities that trade on global markets.

Of those goods targeted by trade actions, our total exports to China are estimated to have fallen by around $5.4 billion over the year to the June quarter.

But over the same period, exports of those goods to the rest of the world have increased by $4.4 billion.

Australian coal, that otherwise would have gone to China, has found buyers in other markets including India, South Korea and Taiwan.

Over the past year, our coal exports to China have fallen by around 30 million tonnes.

But our coal exports to the rest of the world have risen by around 28 million tonnes.

Australian barley has also been redirected, including to new markets such as Saudi Arabia.

Overall Australian barley export tonnage was up almost 70 per cent to the June quarter.

And Saudi Arabia accounted for over 22 per cent of our total barley export volumes, up from nothing in the June quarter last year.

Australian wine producers are also looking to redirect more of their products to alternative markets such as the UK, Singapore, Germany and South Korea.

Importantly, this demonstrates the power of open global markets.

In many cases, trade actions simply see a reordering of global trade flows.

I want to be very clear.  China’s trade actions carry a cost.

To both Australia and China.

They rob Chinese consumers of premium Australian wine, seafood and other goods.

And they rob Chinese industry of high quality and high value inputs, such as Australian coal.

We would both be better off if markets were allowed to operate freely.

This is why we want a constructive relationship with China.