- China imposes 80% Tax on Australian Barley, 50% of Australian Barley Was Exported to China in 2018.
- Market remains clueless behind the motive, while Speculations are brewing- China blames Australian trade practice; some believe Australian insistence on COVID 19 independent investigation of China, to have been the cause.
- $500 million hit to Australian Exchequer thanks to the US-China Trade War
- Agriculture Minister David Littleproud calls for WTO intervention
The trade dispute between China and Australia threatens a blow of $500 million per annum to the Australian economy, which is largely served by its considerable resource and agricultural-product exports for which China is the primary and the largest consumer.
But now the question which is taking surface in the market is that what prompted China to impose 80 per cent tariff on barley imports from Australia, and what would now be the retaliation from the Morrison Government?
Barley Industry, Tariff Hike Reasons, and Market Speculations
China is the largest importer of the Australian barley with 2.5 million tonnes imported during the last financial year 2019, which though remained significantly down from the peak of 5.9 million tonnes seen during the period of 2016-17, is yet considerable, and in 2018 Australian barley industry parked over 50 per cent of the local production in China while second largest market being japan with the export of 746,000 tonnes.
The Department of Agriculture, Water, and the Environment (or ABARES) had previously warned the market that the U.S-China bilateral trade dispute is a major source of uncertainty in the coarse grain market. In the status quo, while China has suggested state-owned power generation plants to support the local coal industry, the tariff of barley came in the limelight without any similar motive of supporting the local industry, as the barley planted area and stocks have been falling across China since 2015 when the government decided to drop the price support.
As per the Australian grain industry group, the recent trade dispute between China and Australia could cost $500 million per annum to the Australian economy with additional reverberations through regional economies.
While the impact of the recent tariff hike is clear, the reason is yet opaque and seems to be without the motive of supporting the local industry, so many market participants are now looking for an answer or the reason or argument, which could explain the 80 per cent tariff hike on the Australian barley imports, leading to many market speculations.
One of the strong speculations which are now taking roots in the market is the role of Australia’s advocacy for an independent investigation over China related to the foundation of COVID-19 emergence and its handling by the red dragons at the epidemic level, which has attracted a strong global backlash from various countries.
However, the reason for the hike in tariff seems more mundane as according to China’s commerce ministry, the trading practices of Australia have inflected a series of injury on the domestic barley industry of China, which could be inferred from lower prices of Australian barley in China as compared to its own domestic market.
Chinese commerce ministry had backlashed at the Australian barley industry citing dumping and Australian subsidies to be the reason which has inflected injuries upon the Chinese barley industry. However, in the status quo, the Australian government and the barley industry has criticised the finding of the Chinese commerce ministry, and the trade minister- Simon Birmingham had mentioned that “it was completely ridiculous” for Chinese authorities to consider infrastructure upgrade at the Murray-Darling Basin as subsidy for the domestic barley industry.
Mr Birmingham also mentioned that most of the exported barley comes from WA and SA and involves dry-land farming.
While there could be a lot of argument, which could take place over the new tariff imposed by China on the import of barley from Australia, and while Australia seems to be confident in resolving the bilateral trade dispute, it becomes prudent to analyse some of the available options to end the trade spat.
Government Response and Available Options
The new 80 per cent hike in barley imports from Australia will be applicable from 19 May 2020 for a period of five years with an option for affected parties to seek an interim review. However, the Australian government seems to be confident that it would sort out the issue in a shorter timeframe.
In the bucket of available option, the first choice is to sort the issue internally with China; however, China has so far declined ministerial discussion proposal, to which the trade minister had cited that it is very disappointing.
Australian now plans to spend a shorter period further in order to pursue China for the ministerial discussions to resolve the bilateral trade spat; however, if no breakthrough is reached, another option is to seek the intervention of the World Trade Organization (or WTO), which as per the statement from the agriculture minister- David Littleproud is having a strong possibility of that happening.
While China seems to be penalising more and more Australian goods for its advocacy for an independent investigation over China in relation to the COVID-19 outbreak, the Australian government is keeping its cool, which could be inferred from the series of response the country has given over the new custom inspection policies over the iron ore imports from Australia.
Amidst all the recent events in the market and trade spat between the two large interdependent countries and reason proposed by Chinese authorities to increase the tariff hike, another market speculation related to the U.S-China trade relation is taking shape in the market.
Some of the market experts believe that China is trying to commit resources to maintain the trade deal reached previously with the United States under the phase 1 negotiations, which calls for buying a lot of U.S-based agriculture products, and China is now trying to avoid further trade dispute with one of the superpower to further avoid its grim in relation to the COVID-19 origin and poor handling by China.