Nov 05 2020
Trade tensions between Australia and China have intensified as Chinese authorities have banned imports of Australian timber from Queensland and placed additional restrictions on barley imports this week. Chinese importers have also flagged potential bans on Australian wheat, lobster, sugar, timber, coal, copper ore and copper concentrate. The bans would represent a further escalation of the trade dispute between the two countries.
‘These potential bans indicate China’s desire to use its position as a major market for Australian goods as leverage in negotiating the trade relationship between the two countries. Despite escalating tariffs and bans, China still freely imports vast quantities of Australian iron ore and coal, suggesting that its moves have largely aimed to extract favourable conditions from Australia. Nevertheless, the restrictions pose significant challenges for Australian businesses caught in the crossfire,’ said IBISWorld Senior Industry Analyst Will Chapman.
Against the grain
China’s proposed ban on imports of Australian wheat would significantly affect the Grain Growing industry, as China accounted for 14.8% of Australian wheat exports in 2019-20, at a value of $568.4 million. While favourable growing conditions are expected to support industry revenue growth of 19.9% in 2020-21, China’s proposed ban would substantially constrain the industry’s performance. Although Australia’s wheat exporters would likely be able to find alternative markets, China’s import ban would negatively affect prices, reducing industry revenue.
Trade tensions between Australia and China have acutely affected players in Australia’s agricultural sector. Players in the Grain Growing industry have faced the brunt of China’s measures, with Chinese authorities imposing a punitive 80.5% tariff on Australian barley exports in June 2020, claiming that Australia had illegally dumped barley in China. In August 2020, China stopped barley imports from CBH Grain, the largest player in Australia’s Cereal Grain Wholesaling industry, after it said harmful weeds were found in its shipments. China banned imports of log timber from Queensland in late October 2020 using a similar justification, claiming it had found a pest in a recent shipment. This move has significant implications for the Forestry and Logging industry, which exported products worth $593.6 million to China in 2019-20. While the Forestry and Logging industry is less export-oriented than the Grain Growing industry, China accounted for 93.6% of unprocessed timber and log exports by value in 2019-20.
‘China’s increasing scrutiny of Australian imports is one part of the Chinese Government’s strategy to use its economic might to extract political concessions from the Australian Government. The latest round of import bans and suspensions indicates that it believes it can still negotiate a more favourable trade relationship with Australia within existing frameworks,’ said Mr Chapman.
China has also announced that it has increased import inspections on Australian rock lobsters, which represent a significant source of revenue for Australia’s Fishing industry. Rock lobsters account for 42.6% of industry revenue, which is expected to total $1.7 billion in 2020-21. The vast majority of Australia’s rock lobster catch is exported, with China alone accounting for over 60% of rock lobster exports. Consequently, any Chinese ban on rock lobster imports would significantly increase pressure on Australian fishing businesses, which would likely struggle to find alternative markets for their produce.
A new ordeal
Restrictions on imports of coal, copper ore and copper concentrates from Australia represent a new frontier in the strained trading relationship between China and Australia. The proposed import ban on coal would have the most significant economic impact so far, as China imported $14.2 billion worth of Australian coal in 2019-20. This measure would significantly affect the Coal Mining industry, which exports approximately 80% of its output. Industry revenue is expected to decline by 6.9% in 2020-21, to total $67.8 billion, as weaker global economic activity associated with the COVID-19 pandemic reduces demand.
‘The proposed import ban on Australian coal represents a significant escalation in tensions, as China is the primary market for a range of lucrative Australian commodities, including iron ore. The Chinese Government also announced that it plans to reach net-zero carbon emissions by 2060, which would require a long-term shift away from coal-fired energy. This target places added pressure on Australian coal miners, as future demand for their output is increasingly uncertain,’ said Mr Chapman.
The expected bans on copper ore and copper concentrate will also affect the Copper Ore Mining industry, which exports over 90% of its output, with nearly half destined for China. Copper ore exports totalled $6.6 billion in 2019-20, meaning that the import ban would affect approximately $3 billion in economic output and substantially constrain the industry’s performance in 2020-21.
‘China’s import bans are targeting lucrative commodities, which will have significant economic effects and will certainly escalate tensions between the Chinese and Australian governments. While the trade relationship will continue, political imperatives in both countries to deliver economic growth in the wake of the COVID-19 pandemic and show geopolitical strength mean that both sides will want to claim victory in any potential resolution. What that might look like in practice remains to be seen,’ said Mr. Chapman.
IBISWorld reports used to develop this release:
- Grain Growing in Australia
- Cereal Grain Wholesaling in Australia
- Forestry and Logging in Australia
- Fishing in Australia
- Coal Mining in Australia
- Copper Ore Mining in Australia
- Sugar Manufacturing in Australia
- Wine Production in Australia
For more information, to obtain industry reports, or arrange an interview with an analyst, please contact:
Strategic Media Advisor – IBISWorld Pty Ltd
Tel: 03 9906 3647