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Chief economist update: Australia needs China more than it needs us

"You don't mess with the Zohan."

Or in Australia's case, don't mess with the Politburo.

It's only been weeks since Australia called for an inquiry into COVID-19, offending China and sending it into retaliation mode - Beijing banned beef imports from Australia's four biggest "killing fields" on May 12, slapping an 80% tariff on barley imports on May 18 (will not forget the date cause it's my birthday), and is now preparing to wreak havoc on thermal coal - Australia's second top commodity export.

Next stop iron ore, Australia's top export ... and then tourism ... and then education ... and then...

The coronavirus made me do it.

Australia is justified in calling for an inquiry into the origins of the pandemic - so as to learn and guard against the next one. As a matter of fact, royal inquiries into anything that trouble the country's economic, political and financial systems - the Hayne Royal Commission of late (which dealt with the shenanigans of banks, superannuation and financial services industry most recently) - have had Australia correct "mistakes of its past".

This is perfectly rational.

However, to apply the same yardstick to another sovereign nation, especially one which is now the second biggest economy in the world ... is a big no no ... NO.

More so if that country (China) buys 34.7% of your exports (based on World Bank figures) that roughly equates to what Australia sells to Japan (16.4%), South Korea (7.0%), India (4.9%), US (3.8%), and Singapore (2.9%) combined.

Australian exports account for around 20% of the country's GDP. If my maths serves me right, exports to China is worth around 1.4% of Australian GDP.

If Australia- China trade stops completely, Canberra loses US$88 billion worth of exports to Beijing. China improves its trade balance as it stops imports worth US$58 billion from Australia (based on World Bank figures for 2018). China wins ... the economic war.

Just as I've written days before:

China may lose the moral high ground but it'll certainly come out on top should the bilateral trade between Beijing and Canberra stops completely.

Read our full COVID-19 news coverage and analysis here.

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