铁矿法宝 Iron Ore - Invasion Magnet or Magic Weapon ?
Australia has what China needs – high quality iron ore. This could be a strategic negotiating lever. However, if Australia limits access to this vital resource, we become a target.
Part 2: 简单兵法 strategy and economics discussion of iron ore, interdependence, and the expected Taiwan war.
USING THE PROPOSED IRON ORE INDUSTRY CORPORATION AS A TOOL FOR DETERRENCE OF WAR:
CHINA NEEDS STEEL TO MAKE WEAPONS
China needs iron ore to build weapons for the predicted war on Taiwan and to rebuild and function afterwards. Australia provides 69 % of China’s imported iron ore requirements. Until other iron ore sources become readily available, China must have Australian iron ore, for at least seven, maybe up to twenty years.
AUSTRALIA NEEDS MONEY TO BUY WEAPONS
In 2020, iron ore contributed 18% of company tax, which is $ 15 billion added to the Australian federal budget. If a hypothetical successful CMRG1 action to depress iron ore pricing by 10% caused Federal taxation to fall 10%, and we lost $1.5 billion that we would otherwise have, this would be equivalent to China shooting down ten F 35 fighter aircraft, using AUD $150 million as a replacement cost guesstimate.
80% of Australia’s iron ore exports go to China. If this was to stop, the relevant company tax take would decrease by $12 billion per annum. Over a two year period, that is the equivalent of sinking one or two AUKUS supplied nuclear powered submarines, or making it harder to ever buy them in the first place.
MONEY MATTERS
Because of its outsized significance, protecting the tax income stream from the iron ore industry is a matter of strategic importance to the Australian nation in times of peace to pay for defence. Part 1 of this discussion described the need to protect iron ore pricing, primarily based on commercial imperatives. This Part 2 considers iron ore from the point of view of defensive strategy.
MOST LIKELY MILITARY IMPLICATION - TAIWAN
In the case of China attempting control of Taiwan through the exercise of military violence, Australia has three options:
1 Military Neutrality, Economic Collaboration:
Supply raw materials including iron ore to China while NOT providing support, especially military support to Taiwan.
This is inconsistent with past behaviour and public statements and unlikely to be seen as credible by the Chinese military. Australian iron ore resources could be considered an “Invasion Magnet”.
One hypothetical solution is to fully reverse past and current policy and replace US bases and force rotation with Chinese forces, entirely scrapping our current arrangements. Many Australians (myself included) do not find this appealing, and it is politically inconceivable that it could happen in any reasonable timeframe. Attempting to stay neutral for profit is unlikely to allay Chinese concerns.
2 Support Taiwan, Sell Ore To China:
Provide military support for a coalition supporting Taiwan, while continuing to supply iron ore to China.
Australia’s military contribution to such an effort would be relatively little, probably too late. Continuing to supply iron ore seems irrational if we are on an opposing military side. It may be possible, as gas flows from Russia to Western Europe through Ukraine, while war rages.
Fear of losing supply could force China to act on securing iron ore resources, just as Japan was “forced” to invade Southeast Asia to secure resources in WW2.
3 铁矿法宝- Iron Ore As A Magic Weapon.
In a period of increasing hostilities short of war, an Australian Iron Ore Corporation would direct iron ore export strategy. Reporting to the Federal Government, its aims would include national security.
As a strategy for the Australian Government to assist a global coalition to dissuade Chinese military violence against Taiwan, the use of supply restrictions of iron ore would force reductions in Chinese stockpiles. While we would lose revenue due to lower quantity, this would be partially offset by higher pricing.
In the event of war, the costs to Australia of a complete loss of the iron ore trade to China would be enormous, however China’s ability to function economically and militarily would be severely impaired.
If well planned and executed, Australian sanctions of iron ore supply to China would contribute far more to deterrence of war and defence of the region than Australia’s potential military contribution.
Australia should change the lens from how to assist Taiwan militarily, to how to defend Australia’s North West Shelf gas and Western Australian iron ore resources, as well as ensuring local energy and other imported requirements. In the event of a crisis or war, Australia’s main losses would be economic rather than military. Preparations should be made to withstand both.
Restriction or denial of iron ore supply as a lever of international negotiation would be a huge sacrifice for Australia and an outsized contribution to any international effort to stifle China’s Taiwan ambitions. To achieve this, Australia must be able to protect the iron ore producing regions from threat and be able to cope economically without the wealth and tax revenue it has been generating. These both require planning ahead.
China is publicly committed to reducing reliance on Australian iron ore as a matter of urgency and as a strategic priority. As with the end of the gold rush and the wool boom, Australia will move on to the next chapter of our own economic development. Australia will have a thriving economy after geopolitics has reduced the value of the large but unreliable iron ore market.
Like economic advantages, strategic advantages are temporary. If there is no war over Taiwan then we have perhaps a decade or longer to continue to benefit dramatically from iron ore. We can use these resources to prosper now and transition to the next opportunity. From an economic development perspective, let’s not waste what we have now, nor assume it will last forever.
From a defence perspective, if the regional military situation continues to deteriorate, iron ore is our ace in the hand and must be played with skill.
简单！6 Sept 2022
China Mineral Resource Group (new Chinese monopsony / group procurement company)