Why “Pig Iron Scott” should boycott iron ore to China

Australia’s personality-disordered PM, Scott Morrison, is galavanting around the world drumming up support to contain China. He’s invited himself to the G7 to lace it with anti-CCP warnings. He’s dropped into Downing Street to spray Beijing. He’s soon off to the White House for an anti-CCP powwow. At home, more US marines and naval access are on the way because the Morrison Government believes that war over Taiwan is now a distinct possibility.

I’m all for this great China pushback. I part ways with the disordered PM is his total lack of a plan to deal with it.

You have to ask yourself, if the CCP threat is so grave, and I agree that it is, then why are we not preparing our military, our economy, our immigration program and society to bolster our way of life before it all goes pear-shaped?

Labor says it’s because Morrison is just playing domestic politics, meaning he’s exaggerating how bad is the CCP threat. But, clearly, Morrison’s anti-China world tour and determination to cut off all exports bar iron ore is more than that.

No, it’s the disordered PM’s usual total lack of policy process that is at work here. He’s not a leader with a strategic outlook. He never plans anything. He can’t execute his way out of a wet paper bag. He’s a glorified real estate agent with a gift for gaslighting. It could even be argued that his national interest anti-CCP crusade is accidental, the result of his own blundering motormouth, not any strategic insight.

So, if the CCP threat is real then what should he be doing about it?  If you’ll permit me the luxury, I’m going to answer that question with another.

The closest historical analogy we have to our emerging circumstances is the period before WWII when a range of fascistic states challenged an existing imperial order. The Nazis and Japanese imperialists had very similar plans to the CCP.

Like both, the CCP has invaded neighboring Rhinelands and Sudetenlands. It seeks lebensraum. It is operating concentration camps for the “divergent” and ethnically impure. It is eugenic, seeing itself as superior to foreign and local barbarians. It has plans to invade other neighboring democracies. Its declining economic fortunes and rising nationalism require forever war to keep it in power. It seeks imperial overlordship in its continental region and global hegemonic power.

So, the question is this. If you possessed a secret that could destroy the Nazis or ultra-nationalist Japanese parties in 1935. Long before they could launch their apocalypse upon the world. And you had a time machine to unleash it then would you use it?

Obviously.

The funny part is, equipped with this future history under the CCP, Australia possesses just such a secret and the time machine to use it.

It’s called iron ore.

If we accept that the CCP is the latest manifestation of the historical tendency to give rise to political evils intent on dominating the lives of freedom-loving humanity, then why don’t we cut the flow of iron ore right now unless or until China installs a democracy?

The results would be instant. The Chinese economy would be structurally shocked to its knees. 30% of its GDP is real estate-related. 60% of the iron ore that drives it is sourced in Australia. Roughly speaking that is 18% of Chinese GDP that would virtually collapse overnight. Vast tracts of industry would fall silent. An instant debt crisis would sweep the Chinese financial system as its bizarre daisy chain of corruption froze. Local governments likewise. Unemployment would skyrocket.

It’s possible that it would trigger a political revolution in China. Who knows what forces would rise and who would win. What we can say with confidence is that it would pre-occupy the CCP for many years and hobble it permanently. Its plans for regional domination would be set back decades if not be entirely over.

Australia would suffer too. So would the world. It would trigger global recession as financial contagion sent shock waves through global markets. Stock markets would crash. Credit spreads across emerging markets would blow up. Commodity prices would crater.

The Australian dollar would crash straight to 40 cents if not lower.

But, you know what? We’d be OK. The very large initial hit to national income would quickly be offset by the halving currency.

There would be a blow to living standards as our national purchasing power plunged. Imported goods prices would become more expensive (though nowhere near as much as the degree of currency fall). Australians would travel less overseas as well. House prices would no doubt fall for a while but QE would support them again before long.

China would counter-boycott all exports to Australia so we’d see some short-term shortages. In 2018/19, we imported roughly $15bn in useful electronics from China that would need substitution but the rest was pretty much cheap China crap:

We’d quickly source new supply chains or rebuild our own production.

What else might China do? It would contemplate a Pilbara invasion but so long as Australia had Washington’s backing in advance that would be a silly idea quickly dismissed. It would probably bring forward its plans for the invasion of Taiwan or strike west into the “Stans” to distract its suddenly idle masses.

From a realist perspective, this would be a good outcome. Forcing China to move before it is ready would bring forward its ultimate containment. Whichever military adventure it chose, it would force Wall St to stop whoring with the enemy. Europe would fall into line with a mass China boycott. The rosy dawn of Sino-Russian relations would freeze as Putin’s sphere of influence was jeopardised. Countries across the Indo-Pacific would recoil in fear and horror, and join the anti-China liberal bloc.

We’d certainly see cyberwar launched on Australia. As well as soft power war in all multilateral forums. But the backing of the US and other liberal democracies would get us through that. Rare earth minerals would be blocked. But we can ramp that up here. There’d be a whole lot of futile screaming from wolf warriors which we could pack onto a Hercules and drop off in Antarctica.

So, why don’t we do it? Especially since the most likely scenario over the next twenty years is that this all happens anyway. As China’s economy stalls with the end of urbanisation, and it is increasingly blocked from export markets, the iron ore trade will end and the CCP will need wars to stoke nationalism in lieu of prosperity. Why wait until 2035 to let the CCP crush Taiwan, by which time it will have a blue water navy to threaten far-flung democracies and protect global commodity supply chains. Why wait until CCP expansionism threatens WWIII?

The answer to that question also lies back in time. In the 1930s, when we last faced the paradox of supplying bullets to the very fascistic state that was coming south to destroy our way of life, we didn’t stop then either. We were still supplying Imperial Japan with pig iron on the verge of war in 1938, even as its forces slaughtered Chinese peoples in their millions and planned the attack on Pearl Harbour. Australian government support for this idiocy earned the Attorney General Robert G. Menzies the moniker “Pig Iron Bob”.

Within a few short years, that pig iron was slaying young Australians. Yet we had neither the wit nor courage to stop it in advance.

The answer is twofold. First and most importantly, such bold endeavour is very difficult in liberal democracies that are constrained by the limits of accepted public discourse. This is great strength in peacetime as it preserves openness and prosperity. But it becomes a liability when, every so often, an autocratic regime rises to threaten it.

Second and related, we want the cash. Particularly the cash that goes into certain hands. Australia can survive cutting all China trade relatively well, but the iron ore interests that run the joint can’t. They would go from hero to zero overnight.

That’s what you might call political economy inertia. Things can’t change when so many interests are embedded in the architecture of national management. Even when that edifice is a crumbling relic from a bygone age.

Bar one, there is nobody more in the pocket of those interests than “Pig Iron Scott” Morrison. Bizarrely, the one exception is the Australian Labor Party, which defends China and the CCP at every opportunity.

So there’s your answer. We put on a good show but facing the hard truths and planning accordingly is well beyond us.

Houses and Holes
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Comments

  1. As was pointed out last week – lets not just delete and ban important information because you don’t like it.

    This article relies entirely on this quote:
    “. 60% of the iron ore that drives it is sourced in Australia. Roughly speaking that is 18% of Chinese GDP that would virtually collapse overnight. ”

    But that is just absolutely false.

    https://www.aspistrategist.org.au/no-end-in-sight-for-chinas-dependence-on-australian-iron-ore/#:~:text=In%20the%20iron%20ore%20market,a%20further%20900%20million%20tonnes.

    Australia supplies 60% of Chinas IMPORTED ore – not its TOTAL ore.

    Further Australia imports from China of “useless electronic crap” would cripple this country over night – those integrated circuits run everything from your blinkers to your pedometer.

    Taiwan produces the ultra-high end chips for the latest smart phones sure – but that is a TINY fraction of the market – 68% of the rest of the worlds chips are produced in China with vast majority of integrated circuits.

    And the rest of that crap is integral to the basic functioning of our broader society and manufacturing. If we were cut off not one else is going to start making these things for us. No one else will start making all the wiring, electronics, monitors and basic equipment we need to run our offices, build our homes, run our economies. Why would they? They can’t compete with China, and we can’t make it ourselves. Losing 20 million customers in a global market of 7 Billion is absolutely nothing to China.

    There are some very fundamental errors in your assessment – starting with the 60% of their total iron ore usage – right through to how reliant we are in our manufacturing and alternative sources.

    • Was of course talking about imported ore. Thanks for clarifying, Makes no differnce to argument.

      Cheap China crap would cause some shortages, as said. It wouldn’t take long to substitute. China is not the only one making screens and wires.

      What is interesting is how quickly a CCP astro (equpiped with the usual impossibly anglo name) jumped on this post.

      • Could this bloke be a reincarnation from Jim Jones of the Jonestown Massacre? But seriously, the “free market” might gradually size down our iron and coal exports. Reading Angus’s “Technology Roadmap”, not so sure about our gas exports.

      • Arthur Schopenhauer

        You are very wrong on the details of the supply chain issues David. ‘Cheap Chinese crap’ includes just about every fixing (nail, screw, anchor) in Bunnings.
        It takes considerable skill and capital to re-establish those industries locally. More skill and smarts than looking at spreadsheets all day! 😉
        Your arguments would carry more weight if you took the time to truly understand manufacturing and the current structure of supply chains.
        The average car has ~1900 suppliers. Start there, and work your way up to TVs. 😀
        It would give your articles more weight, and help the Australian public understand our predicament.

        • I agree
          In the past China has shown the world how it will respond to coercion.
          It’s a simple strategy whereby they curtail the export of Rare Earth minerals
          So before we decide on a global unified China “Containment” strategy we need to plan for their obvious first retaliatory step. We’ve know what it is for over a decade yet where are we (rest of the world) when it comes to countering China’s obvious first step retaliation. is that crickets I hear?

        • You are correct, most stuff at Bunnings is Made in China and it is hardly cheap at all. The quality of goods at Bunnings is questionable, but that doesn’t stop the masses shopping there.

        • and the chinese retaliation of sinking a handful of oil tankers to decimate our huge 3week stock of fuel is gunna be fun ….flatten all ag., mining and logistics inside a quarter

        • kierans777MEMBER

          There’s also the issue of oil supply. That’s what got me the most scared. Given we import most of our refined petroleum from Asia, notable Singapore and Japan there’s a potential avenue to strike Australia back. Knowing people in the geology business, we are well behind what is required to exploit rare earth minerals on the scale required by our needs.

          • Yep the thing is Australia is one of the best sources of Rare Earth minerals but we just don’t have the experience, knowhow or political will to develop these resources. Today Rare Earths are used in all sorts of applications, even tiny ceramic capacitors ( hundreds of them in a typical cell phone) require Yttrium but more importantly the way that these components are used requires Yttrium to be really cheap.
            If you can remember back to around 2000 there was a crises building cell phones because the worlds supply of Tantalum dried up. it would be a repeat of this Tantalum crises but just two orders of magnitude larger if Yttrium were suddenly unavailable.

    • The FNG.MEMBER

      We don’t make blinkers or pedometers do we? We don’t make cars. We don’t make TVs. What are you talking about?
      Last I checked my phone was a Samsung. Will Samsung be OK with China saying they wont supply to Oz?

  2. Hmm. And so then what happened to “commodities are fungible”. Wouldnt this IO just go elsewhere for resellers to make a cut whilst selling it straight back to China?

    • Iron ore has always been the exception. The sheer magnitude of the trade between the Pilbara and China makes it unique.

      But yes, there’d be scammers. Glencore speicialises in such stuff.

      You’d need to be determined to take them out too.

      • This is true it does have a special power of the supplier here.
        To truly take out the middlemen you would really have to sanction china for IO.
        This may be in the works with the G7 starting to murmur about china being a regional security threat and concerns about theor nuclear weapons.
        Iraq 2.0

  3. Arthur Schopenhauer

    Interesting take David. You missed the fact that Australia’s foreign affairs policy was almost entirely run from London until 1942. It ceased in 1942, with the fall of Singapore, the withdrawal of troops from Africa and Britain’s refusal to support Australia in the Pacific War.
    Prior to ‘42 Australian diplomacy was mostly limited to trade, with Britain handling the broader strategy.
    It wasn’t until Gareth Evans that Australia had a confident and independent Foreign Affairs Department. That was scuppered during the Howard years. There is more than an echo of the 1930s fecklessness today.

    • Though I see Boris go all Churchillian and invite himself to the Scrotum – Biden meeting. Mother country and all that.

  4. Ronin8317MEMBER

    Advocating Australia to declare war on China is being stupid.

    China is destroying itself building empty apartments. An Australian ban on iron ore will allow the CCP to change direction to create a more sustainable economic model while painting Australia as public enemy number one. The US will also happily take over all the cancelled Australia export contracts. Despite all the tough talk, China is still pay of the global supply chain.

    A much better stragedy is to get rich while China continue to destroy itself via real estate speculation.

    • Who said anything about war? We can just say no thanks to the iron ore trade. Who cares if the Chinese hate us. I like the sound of it actually.

      Sure, it would push China onto a better development path. But the blow to growth would still be substantial and permanent. That’s why the CCP can’t bring itself to do it.

      But, yes, it will kill itself with empty apartments eventually.

      • Australia would suffer too. So would the world. It would trigger global recession as financial contagion sent shock waves through global markets. Stock markets would crash. Credit spreads across emerging markets would blow up. Commodity prices would crater.
        Here is your answer to your own question.
        The USA would NOT allow us to wreck the world economy.
        Just as the US under FDR sold oil to Japan before it’s entry to WW2, to stop it from grabbing the rescources it needed from SE Asia. It was the US clamp down on letting Japan have Fossil Fuel rescources that led to the attack on Pearl Harbour.
        Morrison’s dangerous “war with China “babble may get us into a sh#t load of grief.
        War with China ! shriek Dutton and Scrotum.and what do we have to prosecute such a war ?
        6 redundant Collins class subs that we can only get crews for 2, Some F-35 fighter jets that don’t work, a parcel of Abrahms tanks
        We don’t even put our soldiers at the pointy end up north , but holler for U S Marines.
        Sheesh Give us a break.
        If we are to go to War, the entire economy and all our (wo)man power needs to be mobilised, that means national conscription , putting democracy into moth balls, granting Morrison the powers of a war time leader, i.e. Dictator ship which I am sure he would gleefully accept.
        In effect we would have to destroy the country to save the country, now where have I heard that before ?
        Get a grip David you are slipping into fantasia.
        If China took out our 6 population centre in a nuke strike, would the USA risk full sale nuclear war by avenging us ?

    • Display NameMEMBER

      I thought Australia was destroying itself with RE speculation. Trashing the banks, sending rates to zero. I have not heard anyone articulate a sensible path out of this mess as yet. There is now two much debt to inflate it away

  5. reusachtigeMEMBER

    I am deadset against anything that will further jeopardize the already over-constrained supply of pretty Chinamen ladies from Chongqing and Chengdu coming here to work in the relaxation lounges!

  6. Mike Herman TroutMEMBER

    It’s a nice idea but when was the last time The Australian government made a far sighted but economically difficult decision. Just doesn’t happen. It is interesting how Morrison runs around thew world bad mouthing China while we make fat stacks of cash off them…

  7. Thank dog the CCP bogeyman is alive
    When I was a lad with regard to international relations, we used to talk about governments having 3 options available to them.
    Option 1 was Diplomacy
    Option 2 was Military force
    ah and that left the Third option, the option that no one in polite circles ever wanted to talk about.
    What’s the Sac/Sog moto? “Tertia Optio”
    In my opinion it would be a huge mistake to assume that only the USA has a third option available to them.
    So what’s China’s Third option?
    How will they proceed if options 1 and 2 are blocked?
    Sometimes it is worth the time to think about the options that an opponent is left with before you corner them.

    • Why would any hostile state do Option 2 to Australia? We have sold off our critical assets and these are held in foreign hands. Ports, electrical infrastructure, farming assets. We have been silently invaded without a shot being fired.

      • There’s an interesting parallel between China today and Imperial Japan in the late 1920’s early 1930’s
        Imperial Japan had secured access rights to Manchurian resources (look up Southern Manchurian Railroad) yet they still created an Incident whereby the Japanese Military Industrial complex (read Kwantung Army) had reason to invade and occupy China. Why you might well ask? they already had access rights so why invade?
        Look into this a little more and you’ll discover that the Imperial Japanese army was against the invasion, yet the invasion happened for commercial reasons.
        Can you think of anyone that might benefit commercially if they were in a position to dig up Aussie ore themselves and export as much as they wanted keeping all the profits?
        With the price of IO above $100/T Rio is making about $70/T profit and Australia is shipping close to 1B Tonnes of IO per year. That’s reason enough for commercial Chinese interests to take matters into their own hands thereby forcing their Government into a war that no Politician ever wanted.
        To paraphrase Dwight Eisenhower …Beware the military Industrial complex

      • Presumably a hotting up of the cold war to the point we ban exports to china will be followed by “appropriation” of chinese assets within australia. That would be motivation, I think.

  8. TailorTrashMEMBER

    If we don’t ship ore they won’t ship reo to the Chinese developers and builders putting up sh1tboxes for sale to China. Then where the fcuk will we be ?
    This country is headed for big pain whether it changes course or not. The lack of any clear vision or plan will
    end in its destruction .

      • FUDINTHENUDMEMBER

        My god given right to speculate on expensive sh1tboxes and buy junk at bunnings to do renos and watch the block on me extra fcking large TV, all made in China thanks very much. That’s what we’re fighting for!

  9. Chairman Meow

    Succint description of the United States here,
    “Its declining economic fortunes and rising nationalism require forever war to keep it in power. It seeks imperial overlordship in its continental region and global hegemonic power.”

    In fact everything DLS wrote in that screed is pure projection

  10. > There’d be a whole lot of futile screaming from wolf warriors which we could pack onto a Hercules and drop off in Antarctica.

    You got to stop this Dave. Im trying to drink my coffee and nearly spat it out across the table. That was just too funny. Antarctica hey? Now there’s an image in my head that wont go away. Perhaps Australias new concentration camp? lol.

    So yeah, what your saying is Greed is now a National Security Issue that threatens the lives of todays young. Im glad its not just me who thinks this.

  11. In the unlikely event that nuclear plant pops it’s lid and spews radiation all over southern China’s industrial areas, depending on wind direction, it would have a similar effect, and the French would get the blame. 😉

  12. A far better strategy is goad the CCP into imposing its own ban on importing Australian dirt by causing it to lose face.
    Australia should either abandon the “one China” view and recognise Taiwan as an independent country or start referring to mainland China as “Communist Occupied West Taiwan”.

  13. “The closest historical analogy we have to our emerging circumstances is the period before WWII when a range of fascistic states challenged an existing imperial order.”

    Interestingly, though the fascistic states were, mostly, defeated, the Imperial order itself didn’t survive either and was replaced with something new. I wonder what the new order will look like when all is said and done this time. Perhaps it won’t be based on the USD Petrodollar.

  14. ” Bizarrely, the one exception is the Australian Labor Party, which defends China and the CCP at every opportunity.”
    Disagree. You have repeatedly asserted that anyone who expresses a more nuanced position on China is kowtowing or being treasonous. Such sweeping statements are opinion that borders on propaganda David.

  15. What about pharmaceuticals? We know that almost all pharmaceutical pre-cursors are made in China. They don’t even have to put a ban on exporting them here. All they have to do is start dragging their feet in providing them to Australia and we will start to see shortages. That’s not going to be fun.

  16. Tighten the alliance with US and EU/UK – already happening.

    Reduce export dependency on China for all goods (including IO) – already happening but slower than needed, see Barley, Wine, Beef and seafood for examples.

    Deepen manufacturing, education and skills base – unlikely to happen due to population apathy and greed in the current BAU of house and holes. I mean seriously, why risk your money starting a new innovative business when you can speculate on real estate with large piles of bank debt. Also, our universities are so highly corrupted that the quality of education, even if we did want it is verging on useless. The large cuts in funding for Tafe means the ability to service the skills gap is also diminished.

    What will change it? National pride and patriotism to your country. We can accuse China of many things but being unpatriotic is not one of them. Australia used to be like that, then we got lazy and arrogant.

  17. gballardMEMBER

    Totally agree with the strategy of cutting all iron exports to CCP controlled China. I have been arguing an almost identical view for some months. CCP controlled China will cut its dependency on Australian iron ore at the first opportunity. Why wait for the axe to fall? Australia should seize the opportunity to act first before all the African mines ramp up to fulfill iron ore demand minus Australia. A mitigation strategy should be developed whereby the economic cost to Australia is offset to the extent possible by other countries that import iron ore increasing orders from Australia.

    However this is all wishful thinking, and our lack of courage to act will likely cost Australia and much of the World dearly in the coming years.