What began as a political spat between China and Australia has developed into a one-sided trade war, writes OCN Group China, a war that threatens severe disruption for a growing number of Australian exporters, according to ocngroup.com.
China is likely to ban a range of Australian products from entering the country from as early as this week.
The measures are a severe escalation in China’s campaign of pressure after a two-year standoff caused by Covid.
China’s blacklist, allegedly verbalized to traders, includes coal, barley, copper, sugar, timber, wine, and seafood. It doesn’t include materials such as iron ore or natural gas, where import curbs could unduly hurt China’s domestic economy.
“Earlier this year, China threatened that many of the items that Australia exports were replaceable,” the OCN Group source said. “Now they’re doing just that. China seems resolute in its desire to punish Australia and make it an example.”
That means discomfort for global commodities companies transporting coal from massive mines in eastern Australia or lobster farmers off Australia’s west coast. Vintners, who’ve been seeing a surge in demand from China’s expanding middle-class, may also feel the pinch.
The coal used for energy or to produce steel is China’s primary target. Coal constituted around 10% of Australia’s export earnings from China last year, way less than the biggest earner, iron ore, and a few steps under natural gas.
Iron ore is somewhat protected from trade sanctions because China’s extensive steel industry needs enormous amounts of Australia’s high-quality ore.
The rest of the products in China’s sights are in the “other” category, which, added together, make up around 5% of export earnings if wheat is included, according to OCN Group’s analysis of data from Canberra.
Beijing doesn’t seem too worried about its wealthier population’s desire for lobster or wine. China is Australia’s biggest buyer of premium wines, spending almost $830 million in the year to September. That’s more than twice the value of Australian wine exports to the United States.
The industry has been expecting turmoil in its primary market since China started two trade investigations into Australian wine earlier in 2020, with shares in wine producers dropping as much as 3%.
The copper market highlights the trade mismatch between the two nations, with more than half of all of Australia’s copper exports headed for China last year. But Australia only contributed close to 5% of China’s demands, so it shouldn’t be too difficult to find alternative sources. One Australian copper producer saw their share price drop by close to 10% but are confident they will find replacement buyers for their ore. The ore might still find its way to China, perhaps after being blended or refined in a third country first.
Two other areas China has targeted are sugar and wood. China said it stopped accepting wood from Queensland after pests were found during inspections. Neither wood nor sugar are big earners for Australia with China, said OCN Group.