Australia-China Trade Relations Worsen; Are the Aussies Staring Down the Barrel?

Summary

• Australian exports to China have been hit majorly across the coal, beef, barley, cotton, and wine industries amid ongoing political and economic tensions.
• China accounts for a quarter of Australian exports, most of which are in two of the biggest industries of coal and iron ore.
• Australia and China have been experiencing a fall-out since 2016 when reports of Chinese interference into the Australian politics came to light.
• Beijing has reportedly asked the students to not travel to Australia under the claims of increased racist attack in the country.
• The optimal solution would be to improve the diplomatic ties and conduct business as usual, while nation’s traders are looking for alternate trade partners.

Amid growing virus-spat and economic and political heat between Australia and China, Australian exports have suffered considerably. Industries affected by this fall in exports include coal, beef, barley, cotton, and wine.

This comes in the wake of warnings given by Beijing to its citizens against travelling to Australia, under the allegations of racist attacks in the country.

With the international trade already suffering because of closed borders, this comes as a major blow to the Australian exports. Not only the trade relations between the countries are on the line, but also their diplomatic relations have been severely affected.

IN CASE YOU MISSED, DO READ: Is Australia Breaking Up with China?

Trade Dynamics Between Australia And China

Australia and China have a long running relationship based on bilateral trade. However, the rift between the two countries has been on the rise. The ties started to weaken in around 2016 when China was suspected of interfering in Australian political matters.

This was followed by a legislation to ban foreign interference in Australia. However, there were still recorded instances of Chinese intrusion in the domestic Australian affairs. Three months later, the US and Australia decided to take mutual action to confront China amid these claims. China retaliated by supressing imports of barley from Australia stating customs violations as the reason.

Subsequently, China formed a quarter of the market for Australian exports up until 2019. Thus, Australia has a heavy reliance on China.

The year 2020, however, changed the trade equation between the two nations. This was seen post Australia joined US in questioning China over virus origin and handling.

Australia’s biggest exports which include iron ore, gas and coal have been severely hit. Australian exports are being banned on various claims which include dumping of goods and customs violations.

China’s retaliation has come as the result of claims made against them. They have a history of hurting the economies of countries that have called them out for the treatment of minorities in their country or have banned Huawei’s 5G technology or have disagreed with them on territorial claims.

Measures to handicap the economies include restrictions on trade and tourism, which has been seen in the case of Australia as well. Another method of retaliation for them has been through detaining Australian journalists and other Australians based in China or holding them for questioning.

Is There A Protectionist Intent Behind These Restrictions?

It is suspected that the restrictions on the imports of coal have been done by China to protect their domestic coal firms.

The Chinese coal industry has been witnessing a staggering quantity of supply and thus their economy has been dependent on Australian imports. However, there have been steadfast improvements in their domestic production of coal.

There are also reports that Chinese spinning mills have been ordered to stop buying cotton from Australia. Therefore, these moves do not just have a protectionist intent behind them. They are clearly a result of worsening ties between the economies as China wants to handicap the Australian economy.

Beijing has also reportedly asked students to not to travel to Australia under the claims of heightened racism attacks in the country. The Australian government, on the other hand, has warned companies of a cyber-attack threat, allegedly originating from China.

While, total boycott of trade between the two countries could have a more significant impact on the Australian economy than the Chinese.

The Impact of Trade Restrictions

China accounts for about $153 billion worth of exports from Australia. One of the biggest impacts of the worsening of trade ties between the two countries would be felt in the higher education sector. Chinese students’ fees accounts for a massive chunk of the revenues collected by the Australian universities.

As tourism and migration came to a halt because of lockdown restrictions post March 2020, the loss to these Australian universities started becoming visible in the first half of the year itself. Every year there is a large migration of students and public into Australia which provides a huge boost to the economy.

Chinese tourists also make a major chunk of Australian tourism revenue. Thus, a sentiment of boycotting ties with Australia would put all these economic activities to a halt.

However, it is still unclear whether these negative sentiments have been issued in the interest of the Chinese consumers or not. The Chinese people still want Australian education and their exported goods. Not only Australia, but also China depends on these trade ties, as they need Australian imports to function. The domestic production of these goods in China is inefficient as compared to the Australian imports, and China does not have alternative countries to fall back on.

The Way Forward

Put simply, it would be in the best interest of both the nations if these disagreements can be put aside and terms are maintained to conduct business. Even in the backdrop of political tensions in the past, both countries have maintained a steady trade flow and may continue to do so.

Chinese retaliation has been majorly limited to informal methods that do not involve any stringent actions to hurt Australia.

Their resistance has come in the form of verbal boycotts of Australian goods or through claims of trade law violations by Australia. However, if tensions continue for long, China might become self-reliant in the production of coal and iron ore.

This is part of the reason why many theorists argue that Australia should instead focus on finding other alternatives to the Chinese market. India and Vietnam are two old markets where Australia conducts its business. The Australian government has made efforts to polish diplomatic ties with these countries by visiting them.

Regardless of the availability of an alternative, Australia needs to strengthen diplomatic, if not bilateral, ties with China. If things continue to go south, then there might be a trade war much like the one seen between the US and China.