China buys so much of Australia's exports that it is hard to remember a time when our economy was not so connected with it. But it has not been this way for long.
Just 20 years ago Australia exported $10 billion of goods to China, making up just 5 per cent of Australia's exports.
Over the past year, we have exported $146 billion of goods to China, making up 40 per cent of our goods exports.
This rapid increase has delivered enormous benefits to Australia in terms of jobs and new business opportunities. Yet as important as this relationship is our country was a pretty good place 20 years ago with barely any trade with China. If our trading relationship to China were to decline, I am confident that Australia would remain a pretty good place.
That is not the outcome that any wish for. It would be better if we could continue to increase trade with all countries, especially with a country as large as China. But trade is a business deal and if the deal is not good for you, it is best to walk away rather than do a deal at any price.
China has sought to increase the "price" of trading with them through a range of threats. In April, China's ambassador to Australia, suggested that Chinese consumers would buy less beef and wine if Australia pursued an independent review of the coronavirus. China later slapped tariffs on Australian barley and wine and has restricted the import of beef and coal.
A fortnight ago, the Chinese embassy published a list of 14 grievances they had with the Australian Government. The implication is that unless the Australian Government corrects these issues then China will continue to restrict Australian trade.
The list of 14 issues include not allowing a Chinese government owned telecommunications company build our 5G network, banning foreign interference in our political system and criticisms of China by Members of Parliament.
Some, like the leader of the Labor party Anthony Albanese, claim that Australia's actions are in part to blame for the break down in relations. But which of the 14 grievances would he give up to China in exchange for selling them more stuff? Would it be our foreign investment controls? Would it be the right for democratically elected MPs to speak their minds? Our fundamental freedoms and values are worth more than whatever China would like to buy from us.
China's bullying tactics only serves to highlight what a mistake it has been to allow China to reap the benefits of a free trade world while it ignores all of the obligations to be a member of that club.
When China joined the World Trade Organisation in 2001 it promised to fully disclose the subsidies it provides to industry. China refused to do that until 2016, 15 years late, and even then it only provided the subsidies provided by its local governments. Twenty years later China is yet to fully disclose the subsidies it provides to its industry.
Independent analysis suggests that in 2014, 80 per cent of China's steel industry profits came from government subsidies. China today accounts for half of the world's steel production. It is not healthy for country that is bullying others to control so much of the production of a key commodity.
There is one Australian export that China has yet to impose restrictions on and that is iron ore. China needs our iron ore to maintain its dominance of steel production. As the major supplier of a key input to make steel, Australia should work with other countries to build up their steel industries so we have more balanced production across the world. And, we should build another steel mill ourselves which could help offset any loss in China trade.