Since late 2019, China and Australia have been in a quasi-tit-for-tat trade war that has left both countries suffering economic consequences. Australia’s complaints range from a lack of transparency regarding the origin of COVID-19 to serious human rights concerns that are—to use the words of Australian Foreign Minister Marise Payne—‘deeply disturbing’. Meanwhile, China has presented Australia with a list of grievances, including interference with internal affairs, spreading anti-China rhetoric, and blocking investments based on unfounded and “opaque national security grounds.” The disagreements have embroiled large sectors of both economies, tech giants, and has had politicians on both sides exchanging vitriol.
Economic ties between the two nations have flourished since the 1990’s after former PRC President Jiang Zemin met with former Prime Minister John Howard in what was hailed as the beginning of a new economic strategic partnership built on pragmatism and mutual benefits. This pledge ensured that by late 2020 China was the single largest Australian trading partner with exports that year rising to an unprecedented 48.8 per cent. Australian products have increasingly appealed to a growing Chinese middle class and their insatiable demand for commodities like beef, wine, and lobster have helped drive Australian economic prosperity. And for a long time, both countries benefited. So, why resort to a trade war and who is really winning?
China has imposed serious limitations across several key industries in response to what it calls Australia’s “poisoning of bilateral relations,” which is essentially a euphemism for Australia’s recent and vocal criticism of both China’s domestic and foreign policy initiatives. This has seen certain industries experience a drastic drop in revenues. Before 2019 China accounted for more than 40 per cent of all Australian wine exports (including 50 per cent of red wine exports) which has now fallen to near zero. Likewise, export sales for southern rock lobsters have also plummeted. Previously, China accounted for 96 per cent of all southern rock lobster export sales. However, following unsubstantiated Chinese claims of contamination, imports halted and the industry essentially stopped dead. Where just over six months ago, an Australian fisherman could have expected to receive around 80 dollars per kilogram for lobster, they are now lucky to get 25 dollars per kilogram. Similar situations have occurred across the beef and barley industries amongst others. However, despite continued Chinese pressure, some Australian sectors have shown considerable resilience which in turn has limited the overall impact on the Australian economy.
Industries, such as coal, LNG, and iron ore, have fared significantly better despite also facing economic sanctions, and the impact has been far worse for the Chinese economy. Australia’s iron ore industry has been saved by a price surge of over 10 per cent in May 2021, primarily due to global optimism for the continued support of steel for recovering economies and speculation that steelmakers may front load iron ore before China introduces new measures to tighten environmental rules. With steel acting as a primary resource in China’s COVID-19 recovery effort, the current Chinese restrictions on Australian steel will likely have modest effects at best. Likewise, with China’s reliance on Australian iron ore for almost two-thirds of its steel, there is little it can do to curtail purchases of Australian iron ore without hurting its steel industry, economy, and consequently its COVID-19 recovery.
Interestingly, China’s restrictions on Australian coal have forced producers to find new markets elsewhere—primarily in India—which consequently means that Australian producers aren’t getting the same prices as before. However, it has also forced China to buy lower quality coal from other producers for higher prices, while China’s competitors benefit from the surge of higher quality coal at lower prices. A similar situation occurred with LNG, which has seen growing global demand due to it being a cleaner energy alternative to coal. This has allowed Australia to find alternative markets throughout Asia and largely weather Chinese restrictions. An additional factor concerning LNG is that China’s state-owned energy companies have significant equity stakes with major Australian LNG exporters, so damaging this industry has also hurt China. While China has managed to hurt certain Australian sectors with increased tariffs and other sanctions, it has been unable to significantly damage the sectors that really matter – coal and iron ore.
One of the few things that both countries can agree on is that their current relationship is deeply strained. Although this trade war could be seen as a way for each country to save face against their alleged grievances, it has achieved little except to hurt both China’s and Australia’s economies. The only real winners are competitor countries that have been able to secure Australian resources for cheaper prices and undermine the Chinese market. Neither Australia’s human rights concerns, nor China’s claims of economic discrimination are progressing and until a diplomatic solution can be found, each country’s grievances will remain unresolved, and many industries will continue to suffer.
Jerome Meyer is a recently graduated master’s student in international affairs with a focus on global security.