China imposed tariffs and bans on a series of Australian imports, including wine, barley, lamb, beef, coal, lobster and wood, as well as copper ore and copper concentrate used by smelters to refine copper. With damage, China has also seen shortages of raw materials and high costs, and Australian suppliers have also begun to shift their export markets and erect a diversified umbrella.
The Sino-Australian War has attracted attention because Australia is one of the few developed countries in the world that exports to China more than imports from China. In the 2018~2019 fiscal year, China accounted for 32.6% of Australia’s total exports, which was approximately A$153.2 billion. The largest export was iron ore. The market believes that Australia must be the biggest loser in the Sino-Australian War.
In fact, the same is true. Since the tariff war, Australian exports have seen a sharp drop. For example, in November, China’s copper concentrate imports from Australia fell for the second consecutive month, with a monthly decrease of 34%, a plunge of 77.8% from the same period last year, and the lowest level since 2016. Australia accounted for 4.8% of China’s total copper concentrate imports in 2019, second only to Chile, Peru, Mongolia and Mexico as the fifth largest supplier.
However, the Sino-Australian war was not unharmed to China. For example, the New Zealand Herald reported that China relies on coal to provide fuel for its steelmaking industry. Australia is China’s largest coal supplier. China prohibits the import of coal from Australia. The delay in supply from Mongolia, a major supplier, has caused the price of coking coal in China to soar to the highest level in four years. The price of coal produced in China has soared, forcing China to switch to other countries and pay higher prices than Australian coal.
Also affected are the wine industry. Because Chinese companies are forced to find domestically produced barley, the cost is higher, or corn is added to make an inefficient blend of raw materials. According to the Australian Bureau of Agriculture and Resources Economics and Science, the Sino-Australian war cost Australian barley farmers about 330 million Australian dollars, while China’s reliance on Australian high-quality barley for beer brewing has hit the consumer market and may suffer losses of 3.6 billion Australian dollars.
Australian producers now also have self-protection strategies. For example, some Australian barley farmers either grow other grains or export to the Middle East, while brewers concentrate on selling more products in Japan. The lobster industry is also seeking other sales channels, including local development.
According to the South China Morning Post, Australian lobster exports were originally worth US$500 million per year, and 94% were exported to China. Before the Covid-19 pandemic, the price of lobster in Western Australia was as high as US$80 per kilogram, usually around US$53. After the ban, the world-famous swan lobster sold for only $34 per kilogram before Christmas, a 36% price reduction, and sold out almost every day.
Reports to Australian farmers and shrimp farmers said that before China was willing to pay more and the entire market basically moved there. Now the Sino-Australian war has just begun. In addition to lowering prices to seek local markets, in the long run, Australian fishermen hope to spend more money in Japan, Markets such as the US and Europe have sold at higher prices, not just relying on a politically fickle customer.
The biggest pain point in the Australian economy is still iron ore. Currently, nearly half of Australia’s exports to China are iron ore, and products subject to tariffs or other restrictions account for a small proportion of GDP. China has not yet restricted iron ore imports, which is the key to the Australian economy not being affected by China’s tariffs.
The CNBC report pointed out that China imports 60% of iron ore from Australia and is heavily dependent on the product. The Chinese government retains iron ore from Australia because of the lack of available substitutes.
China also knows the importance of supply diversification. Under the route of self-sufficiency in production, the country most likely to become a new source at present is Guinea, West Africa, where China has been investing.It is estimated that Guinea has 1.8 billion tons of iron ore reserves,It is the world’s largest untapped mineral deposit. Now a Chinese-backed consortium has won a $14 billion government tender in Guinea.Will be put into production by 2025. Only then will the impact of the trade war really begin.
(First image source: Flickr/Paul Balfe CC BY 2.0)
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