Australia has a deep dilemma. It is the rope in a US-China tug-of-war. It has military ties with the United States, an old ally, but a huge iron-ore export to China beckons, too big an opportunity to lose, definitely a boost to Australia’s hesitant economy.

China, which accounts for about three-quarters of global demand for iron ore, is the single biggest buyer. The deal with China involves an initial $800 billion of 80 to 100 million metric tons (MMT) of iron ore, and 100 to 140 MMT monthly. (Source: Reuters).

If China stops buying Australian iron ore, global prices are seen to collapse overnight. Australia and Brazil are known to have the largest reserves of iron ore worldwide. But Brazil is a member of the BRICS gang, so a non-dollar trade deal is easy.

The geopolitical value of iron ore rests on it being an input in both industries and weapons manufacturing, both for peace and for war.

As soon as China saw that Australia was gung-ho about the trade deal, it immediately said it will deal only in Yuan, not in US dollars. Australia readily agreed. This vast deal is a profound victory for the Yuan as an emerging rival global currency. With the US losing a lot of trade because of its tariff wars, China is emerging as the only alternative. In other words, the US is ironically pushing for China to lead global trade. It is propping up China’s leadership in global trade without knowing it.

The rationale behind the trade deal is — there is no coercion involved, only influence through the law of supply and demand. This is the opposite of Trump’s policy of bully tactics, threats, and intimidation, which were used against South Korea and Japan, his first victims.

The iron ore deal is the tip of the iceberg. China promises to help Australia with an array of techno-industrial support. China is offering loans of up to 14 billion Yuan, equivalent to US$2 billion, to Fortescui, Australia’s iron ore producer, facilitated through the Industrial Bank of China and Bank of China, to be able to expand and service China’s future needs.

Incentives include: 1) no collateral needed; 2) no restrictions on how the funds are used; 3) a low interest rate of 3.8 percent per annum, compared to prevailing US bank rates of 5 to 6 percent tied to Treasury Bills. The difference may be small at first glance, but the cumulative benefits pile up. These bank policies aim to prop up the Yuan as the world’s emerging currency.

Australia also has big green plans. China is set to finance Australia’s clean energy program, such as its Renewable Energy (RE) initiative where it can buy cheap Chinese solar panels on a massive scale. China is offering cheaper and greener electric-driven mining equipment to Australian mining companies. It is also building new state-of-the-art industrial machines which will be offered to Australian corporations to fuel the emerging “Australian industrial revolution” — big dreams still to be realized.

Australia must take itself out of the US-China tug-of-war, the prerequisite for this dream of an industrial revolution of sorts.