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Integrity, but at what cost – Australia/China trade-war

May 26, 2020
Editor(s): Nigel Pereira
Writer(s): Ashlee Stojanovski, Thomas Sinclair, Nic Morris, Charlie Francis

Following Scott Morrison’s early call for an independent inquiry into China’s initial handling of COVID-19, Australia has faced significant economic and political backlash. China has imposed exorbitant tariffs on Australian barley as well as engaging in thinly veiled threats of internalising their iron ore production and further tariffs on Australian goods. These tensions are no laughing matter. China is our largest two-way trade partner and the economic fallout of this situations’ mismanagement will likely prove disastrous. 

However, Australian’s are stubborn and proud by nature, as we would cut off their nose to spite their face. Therefore, the impasse that we find ourselves is true to brand, but one that we cannot afford to stand at for long.

The economic impact of China’s sharp increase in tariffs of Australian barley and their suspension of imports from four meat producers is detrimental. Although the suspension of beef imports is said to amount to a 20 percent reduction in national beef exports, the barley tariffs are believed to be significantly more costly. The tariffs are said to comprise a 76.9% duty along with an anti-subsidy duty of 6.9%[i].

China pays Australia approximately $1.3 billion for barley per year and our exports to China are said to make up 50 percent of all barley exports[ii]. Adversely, China is not likely to experience any significant loss in barley levels, with countries such as France and Canada all too happy to increase their levels of barley exports.

The Australian Government is now scrambling, concerned that domestic barley producers have few feasible export options. Saudi Arabia has been flouted as a temporary solution for stock currently en route[i], while longer-term locations such as Japan[iii], to which we currently export 800,000 tonnes[iv], and Vietnam, to which we currently export 400,000 tonnes; both fall short of the magnitude to which China consumes. To put that in perspective, 2.4 million tonnes were exported to China between 2018 – 2019.

The tariff is, without Chinese intervention, to remain in place for five years – leaving Australian agricultural industry desperate, the Government left to consider whether COVID-19 inquiry concerns were an appropriate trade-off for marked reductions in agricultural exports.

More concerning still is the knock-on effect on other industries, both in China and Australia. Simon Birmingham, Australian Minister for Trade, stated that China’s decision would be “bad for their breweries”[iii] and that Chinese customers would ostensibly pay more for non-Australian barley, which would be of a lower quality. Mr Birmingham has further asked China to respond to reports that Chinese officials are considering placing significant duties on Australian seafood, oats, and fruit[v].

Farmers and producers are ultimately apprehensive regarding the future of Chinese exporting. Western Australian and South Australian agriculture in particular have taken a fall. WA farmers are predicted to see a loss of $200 million[iii] due to a reduction in prices and exports. As barley production becomes less viable many farmers are switching to the safer wheat crop.

Some commentators have suggested that China has implemented these tariffs as a result of Australian tariffs on Chinese steel imports[iv]. The Australian Government is thus left to deliberate on whether diplomatic efforts, reductions in imports, or both are the best options for manoeuvring out of this economic quagmire.

Beyond this the overall deterioration of the China and Australia relationship has given Australians a rude wake up call. 

Australia has enjoyed the influx of Chinese money over the last decade, which has been a blessing for our economy. However, the unravelling could be painful as the cash river trickles thin, forcing us to rethink our relationship with our largest two way trading partner – China. [vi]

The potential for new tariffs spurred on by strained Sino-Australian relationship will cost the Australian economy billions and will inevitably have reaching social implications. 

So what does this mean for everyday Australians? Instability within the job market that has already suffered considerable blow from the COVID-19 crisis, and will only worsen in markets that are overexposed to China. 

With the agriculture and farming industries working in tight margins, businesses will naturally cut costs; viz higher unemployment and dwindling profit margins.

The question for the Australian industry and governments is whether or not we are prepared to avoid reliance on any sole nation for trade. If this is the case, we should duly re-evaluate our trade with China, especially in face of recent political and economic instability.

We have been enjoying mutual economic gains for years, however nowadays one in three exports[vi] are going there (a concerning level even if it were with a close ally). While Australia is having its international diplomacy labelled ‘a joke’[vii] and its sovereignty as “gum stuck to the bottom of China’s shoe”[viii] by our pacific neighbour, it is no wonder why concerns over reliability are raised even more so today.

Taiwan is a recent example of an economy starting to manoeuvre its reliance away from the mainland. In its tourism sector, over the last five years it has been able to attract more international (non-Chinese) tourists after the election of the patriotic President Ing-wen. This was at the same time China had pursued measures to reduce tourist visas to the island[ix] in an apparent retaliation.

Australia’s recent stand against China is not without precedent. Under Prime Minister Turnbull, Huawei and ZTE, two Chinese tech giants, were banned from rolling out Australian 5G networks over security concerns[x]. Since then, despite China snapping at Australia in the form of coal export hold ups[xi], other nations like Canada, the US and even (as recent as last week) the UK, have now followed Australia’s lead.

In any case, Australia must tread carefully while we are already vulnerable with the Great Lockdown; any measure to reduce trade should be met with opportunities elsewhere, and not simply be self-inflicting.

[i]https://www.reuters.com/article/us-china-australia-barley/china-to-hit-australian-barley-with-805-tariffs-from-may-19-commerce-ministry-idUSKBN22U1J6

[ii]https://thehill.com/policy/international/trade/498373-china-imposes-80-percent-tariffs-on-australian-barley-imports

[iii]https://www.beefcentral.com/trade/china-puts-80pc-tariff-on-australian-barley/

[iv]https://www.smh.com.au/national/carefully-laid-trap-why-is-china-imposing-tariffs-on-our-barley-and-what-s-a-tariff-20200519-p54uf7.html

[v]https://thebull.com.au/china-challenged-over-aust-trade-hit-list/

[vi] https://www.rba.gov.au/chart-pack/pdf/chart-pack.pdf?v=2020-05-23-11-35-50

[vii] https://www.smh.com.au/politics/federal/a-joke-china-hits-out-australian-coronavirus-inquiry-claims-20200519-p54uen.html

[viii] https://www.theguardian.com/world/2020/apr/28/australia-called-gum-stuck-to-chinas-shoe-by-state-media-in-coronavirus-investigation-stoush

[ix] https://www.smh.com.au/national/why-australia-must-not-bow-to-china-but-seek-wider-trade-options-20200521-p54v2o.html

[x] https://www.bbc.com/news/technology-45281495

[xi] https://www.scmp.com/week-asia/geopolitics/article/2188701/chinas-squeeze-australian-coal-nothing-do-huaweis-5g-ban

The CAINZ Digest is published by CAINZ, a student society affiliated with the Faculty of Business at the University of Melbourne. Opinions published are not necessarily those of the publishers, printers or editors. CAINZ, our Partners and the University of Melbourne do not accept any responsibility for the accuracy of information contained in the publication.

Meet our authors:

Nigel Pereira
Editor
Ashlee Stojanovski
Writer

My name is Ashlee Stojanovski. I’m studying a Bachelor of Arts, Politics and International Studies. I’m passionate in global affairs, financial markets, and making the world a better place.

Thomas Sinclair
Writer
Nic Morris
Writer

I'm a third-year Commerce student studying Economics and Finance. I am interested in the intersection between international politics and macroeconomic policy, and societal ramifications of such intersections. I plan to study a Masters of Engineering next year.

Charlie Francis
Writer