China’s Free Trade Agreement

Published on Author greenwoodp14

China and Australia finally reached a key trade agreement Monday. Both nations sought this pact for the last decade and it finally came to fruition in Canberra, the capital city of Australia. Economic analysts expect this trade agreement to greatly benefit both sides and to “open up markets work billions of dollars” (BBC News). Numerous players in the Australian economy including dairy farmers, winemakers, and the coal industry will have tariff-free access to the Chinese Market. Meanwhile, Chinese investment in Australia will be greatly increased, as the threshold for Chinese InvestmeHappy Xi Jinpingnt without need for government review has been increased more than four-fold.

Earlier this semester, I highlighted how China’s relationship with Australia was on the rocks as China had imposed both a 3% and 6% tariff on Australian coal. This greatly angered Tony Abbot, Australia’s Prime Minister and led him to publicly condemn his nations biggest trading partner (China).  This agreement immediately removes these coals tariffs and within a few years 95% of Australian exports into China will not incur tariffs (BBC News).

China has been pushing the Asian Infrastructure Investment Bank extremely hard and need Australia to join to give the bank increased credibility. Australia previously balked at joining the bank due to U.S. pressure. With this new trade agreement I wonder if there will be backroom chatter for Australia to join the Bank.

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4 Responses to China’s Free Trade Agreement

  1. While trade that flows freely between the two countries is laudable, how does this deal (specifically the dropping of the coal tariff) jive with China’s commitment to cutting greenhouse gas emissions? Chinese policy appears to be trying to reap all the gains from trade while still making the PR commitment to regulation against pollution. We will see if the two can happen simultaneously.

  2. The Australian economy is very much driven by its resource boom. While this may eliminate tariffs, it does not shift the fundamental demand for energy, iron ore and other minerals and foods. Lower tariffs at most shift the focus from global markets to bilateral trade — but there’s already lots of bilateral trade.

    As to pollution, that comes down to the quality of the coal. My sense is that Australian coal is cleaner than domestic. And if prices are set in global markets then (as above) this won’t really shift the Chinese decision on coal vs other sources.