The trade history between Australia and China is a 40-year-old relationship dating back to 1972. Over the past decade, the volume of trade between Australia and China has been growing fast, and the volume of Australia’s exports to China has increased in almost all areas.
However, a series of strategic disputes instigated with the arrival of Covid-19 and cooled the economic and political cooperation between the two countries. As a result, China started to ban and impose significant tariffs on some Australian goods.
But how dependent is Australia’s economy from China? And what set the conflict in motion?
China’s Importance in Australia’s Trade
Today, many Western powers have a substantial trade relationship with China, and Australia is no exception. China – Australia trade has grown extensively over the past decade, and both sides have benefited considerably.
China is Australia’s largest trading partner in terms of exports and imports. In 2019, the bilateral trade relationship between the two amounted to over $250bn. It’s a whopping figure compared to Australia’s next major trade partner, Japan, with a bilateral trade value of $88bn in 2019. China accounts for around 32% of Australia’s exports and more than 25% of global trades.
China acquires a significant proportion of its minerals from Australia. Other sectors of Australia have also grown in China’s market. On the other hand, China is an essential source of tourists and international students for Australia and is the biggest market for Australia’s wine and agricultural products.
However, Australia is barely among China’s top 10 customers and imports only a fraction of what other countries like the U.S., Hong Kong, and Korea buy from China. Therefore, some experts believe that the recent clash between the two countries would harm Australia more than China.
The Origins of the Clash
A series of unfortunate events in recent years diminished the trust between the two countries. The Australian government accused China of interfering in its internal affairs and passed a Foreign Interference Act in 2017. Although the law was not aimed specifically at China, the move added to diplomatic tensions.
The latest clash was when Australia and some other countries called on WHO to investigate China’s role in the Covid-19 outbreak. The Chinese government objected that the countries should not turn the pandemic into a political issue. One government official warned Australia and other countries that “if you make China the enemy, China will be the enemy”.
Last year, China also released a statement containing 14 accusations against the Australian government, including blocking foreign investment, meddling with China’s policies in other countries, and other allegations. It also threatened a ban and tariffs on Australian products like barley, wine, beef, and coal.
Tariffs and Bans on Australia’s Exports
One of the main restrictions was when China imposed an 80% tariff on Australian Barley. After pesticides were found in several shipments, the Chinese government declared that it had decided to stop the import of barley until further notice. This was a significant blow as about 70% of Australian barley is exported to China.
In 2019, Australian coal vessels were banned from entering China, leaving them stranded in Chinese ports for a long time. China’s Ministry of Commerce also announced Australia’s wine exports have violated the anti-dumping policies and caused “substantial damage” to China’s wine industry. As a result, a 107% – 200% tariff was imposed on Australian wine. China is Australia’s biggest wine customer.
China also imposed a ban on Australian beef, which hurt the Australian beef market by a significant amount. It is also likely that there will be new restrictions on Australia’s agricultural exports, especially wool.
Despite all these restrictions, Australia is still China’s largest supplier of iron ore, and restrictions in this sector are not to China’s strategic advantage.
The roots of these conflicts are much deeper than they appear. Australia is a middle power country stuck between two superpowers: China and the U.S. On one hand, Australia’s economic prosperity depends heavily on trade relations with China, and on the other hand, the U.S. plays a massive role in Australia’s national security, making it a delicate balancing act.
Nevertheless, Australia’s trade relationship with China is vital to both countries and therefore likely to get better again, some analysts are optimistic.