Australia will block iron ore if China invades Taiwan

Some very important articles today point to the sticky wicket that Australia’s huge iron ore trade is now playing on. The first is Richard McGregor from the Lowy Institute:

  • Chinese leaders have long probed Australian counterparts about what they would do to iron ore supply if it came to war with Taiwan.
  • Australia lived to regret shipping pig iron to Japan pre-WWII as it came back as bullets.
  • This is one reason why China wants to develop Simandou.

The second article is from defence:

  • Chief of the defence force, General Angus Campbell, declared that all countries should work together to avoid a Taiwan conflict.
  • He revealed Australia is in planning for such a conflict with the US.
  • “To create a much more complex conflict calculus in the minds of adversaries about what happens when we’re not on our own but when we are working together”.

The third piece is PM Morrison appearing at the Indian security dialogue, Raisina:

  • Morrison said autocratic and free states are increasingly polarised.
  • Australia was reaching out to “like-minded democracies” to fight economic coercion.
  • He is working to promote the Quad in India.

Bravo. We should being doing exactly this. Hopefully, it will convince the Biden administration to ramp up similar efforts. The way to prevent CCP expansionism is to make it plain to Beijing that any and all aggression towards free states will be met with China being booted out of the global economy. The key is to fold in Europe which is still being a cheese-eating surrender monkey.

But, let consider what happens if that coalition of free states does not develop enough teeth to prevent a Chinese war on Taiwan. In that event, I think the following outcomes are the base case:

  • The US will NOT directly support Taiwan in any war. It would lose. It has a long history of giving itself maximum wriggle room on this question. It will provide any and all means for Taiwan to defend itself in a proxy war scenario.
  • Various prognosticators declaring that this will terrify every other Asian capital out of the US alliance network are rubbish. Everybody knows the Taiwan case is a complex civil conflict. The US provides Taiwan no security guarantees.
  • War between the two great powers is still possible but it would more likely be the result of an accident. In that event, it is certain that the Australian iron ore to trade to China would cease permanently.
  • The form a Taiwan conflict will most likely take for the US is in public and private trade boycotts of anything and everything Chinese, especially anything remotely military-related.
  • These sanctions would automatically apply to all allied trade with China and would very likely include iron ore. How long that they would transpire depends upon their goal and is anybody’s guess.
  • If it felt the need to, the US could very easily blockade all Chinese maritime trade routes while the conflict lasted and longer if a coalition of democracies deemed it appropriate. China has no military answer to this. The US could crush its navy anywhere beyond a stone’s throw from Taiwan. China has only four sub-standard aircraft carriers under construction versus an overwhelming ten state-of-the-art US versions with four more on order plus another ten smaller carriers.

So, iron ore trade would likely cease for some period during or after a Taiwan conflict, along with a great deal more Chinese trade going both ways. As such, the policy considerations for Australia are:

  • How to offset supply chain disruptions in manufactured goods in particular.
  • How to contain WA restiveness in the event that iron ore is blockaded. In particular, what will port unions do?
  • How to deal with certain affected billionaires.
  • How to protect the local Chinese diaspora which will be coerced by Beijing one way or another.
  • How to offset the large blow to the external accounts.

I think it likely that Australian living standards will take a sudden plunge. But, as you can see above, there will very big offsets as the economy is re-industrialised just as precipitously, and enjoys large capital inflows from the US.

Your house price will fall, along with the Australian dollar as it plumbs 30 cents.

David Llewellyn-Smith

Comments

  1. ` 10000

    People need to realize that US aircraft carriers don’t roam the oceans solo. They are a 360 degree operational strike group.

  2. You’d probably only need a few Subs to blockade all Naval trade into China. Sink 1 or 2 freighters and the rest would simply stop going. Think of 1 rogue submarine going around the big Chinese trade routes sinking ships. What would happen to the shipping lanes?

      • ashentegraMEMBER

        The USN has the capacity to naval blockade SCS and China. Whether it could blockade the Taiwan Strait better than intermittently is arguable.

        If this conflict descends into open warfare, China’s essential imports of oil, food, coal and metals would simply cease.

      • Someone ElseMEMBER

        WW2 didn’t have all the China Seas ringed with passive detection devices that can detect, track, and TARGET any chinese naval or merchant vessel on or below the sea.

        The best China could do is try a WW1 Jutland breakout; but the result would be devastating. They would be lucky to have any vessel return to port.

    • Frank DrebinMEMBER

      Unless the freighters are owned by China, why would
      any shipping business risk it ?!.

  3. Frank DrebinMEMBER

    All trade would cease, not just iron ore.

    Covid is a good test case as to what might play out, and no doubt our Federal and state governments are learning lessons on how to best safeguard Australian jobs, industries and the economy more broadly should China no longer be in play. Aren’t they ?.

    • kierans777MEMBER

      The federal government is incapable of learning as it is too rotten. The COVID vaccine is showing what would have happened if the states had not led the nation in 2020.

    • Yeah I have been slowly upgrading my electronics ie tablet, computer, phone, tv and electrics ie toaster, jug plus spare ones.
      Everything is not from China, but close around China eg South Korea and Tiawan.
      Imagine like the toilet roll aisle during Covid at Kmart, The Good Guys, JB Hi Fi.

  4. Arthur Schopenhauer

    Interesting scenarios David.

    Another possibility is that China would engage in a 21st century war using social media, corporate alignment/censorship, robots and supply chain sabotage, while the US would continue to fight a 20th Century War with aircraft carriers and stealth fighters. (Hmmm, it might have already started.)

    And, a war between super powers is a nuclear war. 60 minutes of run time and it would be over. (Don’t take it from me, that’s US military doctrine.)

    • SoMPLSBoyMEMBER

      The dislocation of people post *any* kind of large scale military showdown will be staggering.
      The world had about 2.2bil people in 1940 (WWII).
      We’re now at just under 8 bil just 80 years later.
      Straya will be a destination for those in asia who will be forced to leave their homelands.

      • darklydrawlMEMBER

        Whilst I suspect you are correct, environment considerations will likely limit how many people Oz can sustain. (The lack of) Water will be a key constraint with this issue.

        • Water, soil, oil. Without super phosphate and all the other synthetic fertilisers, pesticides, herbicides etc we pour on our infertile soils and the diesel-fueled machinery, trucks etc we’d be up the proverbial

      • Narapoia451MEMBER

        It’s not as mutual as with the USSR but would still be a bad time for everyone.

  5. The banking systems will be among the first to go. Bank accounts wiped to zero. Critical infrastructure (power, water, fuel, transport systems) will be brought to its knees through cyber attacks.
    Pencils and paper will once again become the dominant form of communication.

    • Or US special forces just cut all links to the internet from china.
      I’d imagine that isn’t a particularly difficult job if motivated.

  6. > Your house price will fall, along with the Australian dollar as it plumbs 30 cents.

    Macrobusiness 4 PM

    Best news I’ve ever heard in a decades.

  7. Still no local medicines, water treatments etc……..the list is endless. We are so far from being able to operate without Chinese supplies it is laughable. The US is in a similar position, you just have to look at how busy Long Beach harbour etc are. While the Russians back them they won’t have to cave.

    We have at least a decade of targeted building up of our industrial base before we could contemplate this and the Chinese wouldn’t be waiting around. Lets get the list from the Strategic Board at defence and start from the top before we pretend we can prosecute anything but a hybrid war.

        • I had one couple explain to me that closing all the refineries was a good thing , as it encouraged people to purchase electric vehicles.
          The concept that easy access to petrol from overseas could be cut off didn’t seem to faze them at all.
          Fighting a war , yes I agree. Even just everyday food distribution would be absolutely stuffed.

          • Personal Risk ToleranceMEMBER

            Hydrogen freight – road and rail – makes sense in this context. The problem is we are vulnerable while the change is in progress.

  8. The fed broke it. Now, they own it.MEMBER

    Sweden only maintained its neutrality in WW2 because it agreed to sell its iron ore to Germany.

  9. Another CCP strategy may be to foment “incidents” by autocratic regimes such as Iran, North Korea as well as civil strife in Myanmar etc. The aim being to spread the US resources widely, disrupt and divide Western democracies and head off a unified and agreed response to a Taiwanese invasion.

    • Ronin8317MEMBER

      The ‘blackout’ of the Iranian nuclear reactors in Iran is definitely not instigated by the Chinese.

  10. Over the last 10 year china has increased its iron ore inventories from 60k tonnes to 140k tones today and has average this level for the last 3 years. This increase is happening while they are still building apartments like crazy and not to mention ships, submarines and military equipment as well. We will sell them every last bit of ore, baby formula and vitamin pills we have before any embargo.

    • Last year China imported 1,200 million tonnes of iron ore with ~60% or 713 million tonnes coming from Australia. You have quoted inventory figures of 60k which have grown to 140k tonnes. 140k tonnes is approximately 1 hour of China’s requirements.
      Even if the inventory is 140 million tonnes this is only approximately 1.4 months supply. I have just checked the Chinese inventory figures and there is approximately 140 million tonnes of iron in ports and on ships. If China invaded Taiwan and iron ore shipments imports stopped China would only be able to continue production for a limited time as their domestic production is dwarfed by the imports.

  11. It’s basically game over if China annexes a sovereign, democratic nation.

    Best case scenario would be the US and its allies impose sanctions and ban all trade with China.

    Worst case is a global war.

    I think Australia in either scenario we have massive hyperinflation, we run out of basic medicines and necessities almost overnight, the longer the sanctions or war persists we continue our descent to Venezuela.

  12. Ailart SuaMEMBER

    After reading articles of this nature, you don’t know whether to laugh, cry, or simply treat it as – “well, the writer needs to write things to put chops in the pan”. Let’s all hope that 2 decades into the 21st century, world leaders are thinking on a higher level than they were 90 years ago. Personally, I think they are. Surely all the billionaires would be savvy enough to know that money won’t be much use to them when they climb out of their nuclear-proof bunkers. Radiation poisoning is such a horrific, slow and painful death…

  13. Subprime MinisterMEMBER

    ‘Your house price will fall’

    Totally unacceptable. Would rather be conquered by the CCP…

  14. Any global blockade of China trade will have China facing food, animal feed and energy shortages within weeks.

    What would the CCP do in response? Make a move on Vietnam and Thailand given their food supplies? Not sure thats possible if they are fighting Taiwan at the same time.

    • SEA will ally themselves with China if push comes to shove.

      How can a country like Cambodia be convinced that being bought out by China hasn’t been anything but successful?

      • Possibly true.
        In WW2 virtually every south East Asian country fought with or actively collaborated with the Japanese against the allies.
        What is now Malaysia, Indonesia, Vietnam, Thailand, North & South Korea, Taiwan, Myanmar, Laos, Cambodia & even parts of India (INA) all willing collaborators with the Japanese.

        Only later when the Japanese were rolled back did these quisling lapdogs of the Japanese empire – switch sides and then used the excuse of national independence and anti western colonialism to establish their own usually dictatorial left wing national socialist highly racist and often military backed fascist regimes.

        China has now replaced Japan as the imperialist aggressor in basically the same plan – OBOR is much the same as the Japanese ‘co-prosperity sphere’

  15. Building an iron ore mine to thwart a blockade of iron ore shipments to China from Australia makes no sense.

    If the Chinese ship in bulk carriers, they can have their insurance underwriting withdrawn, and if they ship in their own vessels, they can be blockaded, or sunk. I’m sure the US Navy submarine fleet would love to feast on those behemoths.

    And then there’s the loss of needed food imports, other base metal imports, energy imports….

  16. John Howards Bowling Coach

    Most people seem to still fail to realise that the party with the most to lose from the conflict is China. If you don’t understand that China is 100% dependent on the ongoing global trade then you really have not understood what is going on at all/. The rest of the world can and does easily replicate what China supplies to the world and if for example trade in Iron Ore to China stopped, a fair portion would be shifted very quickly elsewhere as not all of the metal production in China is for their domestic and military production, a lot of it is re-exported and so as the supply chain moves immediately from China, so would the demand of that production machine.

    Besides that China is not really much of a customer to anything else, they might appear to buy a lot but that is a mirage, and it is not going to change any time soon. Chinese have not changed since they brought on the Opium trade by hoarding all the silver and refusing to buy anything from the world over a hundred years ago. Their supposed massive economy is a lie, built on the dreams of millions around the globe who failed to understand that only China benefits from dealing with China.

  17. Myanmar / Rakhine state is China’s western lifeline for oil & gas supply into the Bay of Bengal in case of a east China / South China Sea allies blockade.
    It’s their back door contingency.

    https://www.argusmedia.com/en/news/2176004-china-plans-rail-link-to-burma-oil-and-gas-port

    That’s why the rebellion in Xinjiang (north west China) and the current revolt in Myanmar (south west China) against the Chinese backed Myanmar military dictatorship is important.

    China could face losing their satellite colony Myanmar and that vital energy supply contingency access.
    Already the Bamar or Burmese people are burning down Chinese owned factories and attacking the Chinese overlords in Myanmar.
    -/-
    Meanwhile what does Australia intend to do about the 1.4 million Chinese mainland born communists in Australia?

    Only 360,000 are ‘Australian citizens’
    That cohort are first wave Chinese colonists, now old useless. Many here for decades, still not assimilated, a major welfare & Medicare burden.

    The remainder – 1.1 million Chinese communist mainland born are here in Australia on PR or TR.
    👉🏾All on sole Chinese passports.
    👉🏾Chinese nationals not Australian.
    Almost exclusively Chinese slum clearance – the Hukuo underclass, part of the 9 million so far that China trafficked out to foreign nations as migrant guestworkers/ fake students/ fake whatever visa they could get.

    Do we round them all up and put them in internment Camps and deport them back to China?

    They are the enemy within.

    • Yes, the first 42,000 (which with family reunion and spouse arrival became 100,000) that were allowed to stay in 1989 and 1990 were all CCP members as they were the only citizens allowed to have a passport. Most were being rewarded for good service to the CCP by being sent to Australia for short term language courses.
      How many have become Australians in thought? I do not know but the number of those expressing pro CCP comments in various forums is prominent i.e. “John “Graduated Monash 1989”, “lived in Australia since 1989”, “resident since 1990” etc Other commenters are long term residents in Australia whose consistent pro CCP comments written in a fairly broken English fashion use manufactured labels such as “Peace maker”, “concerned citizen”, “independent thinker” etc Some observers say they are coerced into this because of pressure on relatives at home but, analysis of the one child policy shows that after one generation there are no siblings and within two there are no uncles or aunts. With parents deceased or on a visa in Australia there is no pressure back home – those comments are made willingly.

  18. In the event of a blatant military attack on the civilian population of Taiwan, you could not rule out the retaliation being a massive nuclear strike targeted at the CCP leadership and surrounds.
    The punishment would have to be an order of magnitude greater than any gains China would accomplish by taking Taiwan.

    • Ha ha ha! There’ll be no nuclear strike on China. Their official policy is no first use, but they will retaliate. And they have hydrogen bombs mounted on ICBMs. Did I mention they also have nuclear subs with nuclear missiles too?

      China has achieved MAD status.

      If they invade Taiwan, the West will militarily aid Taiwan with equipment and intelligence. It will not directly intervene.

      Anyone nukes China, and they can kiss goodbye to their large cities. No more San Diego, Los Angeles, San Franciso, Houston, Boston, New York, Dallas, Seattle, etc… Not… gonna… happen.

  19. Mic SmithMEMBER

    I sincerely hope the average Aussie has woken up to the fact China is not our friend. Where possible do not buy Chinese goods especially cars.

  20. Jumping jack flash

    Covid stimulus offered many opportunities to reshape the global and Australian economy and dynamics. The jury is still out, but the likely final result is one of wasted opportunity and a return to the same path to total ecomomic failure that we were on before.

    Strategies like setting up national industry at best, and restarting the debt engine at worst were all available, but none were used in any meaningful way.