Market Adjustments to Import Sanctions: Lessons from Chinese Restrictions on Australian Trade | Dr Darren Lim | GAI
Wednesday, 4 May 2022
Under what conditions do high levels of export concentration in a single market generate vulnerability to coercive economic power? This paper investigates that question by examining the experiences of Australian export industries that lost access to the Chinese market during a sanctions episode beginning in May 2020. Despite China being a dominant and highly valuable export market for many affected industries, the economic – and accordingly political – impacts of sanctions were more modest than anticipated. We argue the reason for this lies in autonomous market adjustments. Theoretically, we extend insights from research on how market dynamics condition the impact of sanctions that generate ‘supply shocks’ (such as oil embargoes) to the new domain of ‘demand shocks’, and present a model of the process of responding to unilateral import sanctions from the perspective of target exporters. We argue impacts can be diminished by three mechanisms: reallocation (selling sanctioned products to alternative markets); deflection (circumventing sanctions via intermediaries); and transformation (adjusting production processes to produce and sell different products). Empirically, we document variation in adjustment processes undertaken in nine Australian industries, and explore the conditions under which adjustments are viable depending upon differences in market dynamics across products.
Darren Lim is a Senior Lecturer at the ANU’s School of Politics and International Relations, a Fellow at the ANU’s School of Regulation and Global Governance, and co-host of the “Australia in the World” podcast. His research focuses on geoeconomics, the rules-based international order, technology competition, and foreign policy responses to major-power rivalry, with a regional focus on the Indo-Pacific. His research has been published in journals including Review of International Political Economy, Journal of Conflict Resolution, Journal of European Public Policy, Security Studies and International Affairs. He received his PhD and MPA from Princeton University, and holds Honours degrees in economics and law from Monash University.