China’s sanctions remain symbolic and Canberra winning trade war

It has been almost a year, China imposed punitive tariffs on Australian goods in a retaliation for seeking an independent investigation into the Covid-19 outbreak. However, Canberra did not bend to the will of Beijing and rather confronted, causing trade tensions to escalate between the two countries. Issuing direct threats, China took aggressive measures to suspend trade activities with Australia in order to damage latter’s trade and economy. Surprisingly, one year later, Australia has not just managed to limit the damages but its exports to China saw value addition of Australian Doller (AUD) 591 million in April 2021, which is 4 percent higher.

Australian government had received a setback after China slapped up to 80 percent tariffs on coal, barley, meat, lobsters and wine. The economic coercion and quasi-military aggrandizement from China intensified in the due course especially after Australia raked up human rights issues in Hong Kong, Xinjiang and Taiwan as well as chose to join an “anti-China” QUAD group of the US, Japan and India. Shrugging off Chinese warnings, Australia began looking for different markets to diversify its exports, and it succeeded in bridging the gap that was created due to China’s veiled boycott. Despite punitive trade restrictions, China has ended up purchasing iron ores and liquefied natural gas (LNG) from Australia at higher rates, which has made Chinese spending on Australian imports highest ever.

China in its latest fire shot had suspended a key agreement for regular high-level economic dialogue with Australia after Canberra opted out of Chinese President Xi Jinping’s dream project Belt Road Initiative (BRI). It led to speculations of further hardships for Australia. However, Australia saw its coffers filling fast thanks to increase in demand for iron ore from China and that too when the prices were skyrocketed. Rates for a tonne of iron ore has reached USD 193.85 figure, surpassing earlier record price of USD 193 in 2011, thanks to demands from China. Rattled by Australia benefitting from the sky-rocketed price of iron ore, China has begun taking steps to control prices. But there is a forecast of prices to remain high for months to come and China too have accepted it though they expect Australian prospects to hurt later.

Coal is another commodity that China stopped importing from Australia as a part of economic coercion. In one year’s time, China’s coal imports reduced by 30 percent as Beijing has started buying coal from Russia and Indonesia. However, in this case too Australia managed to survive by diverting its coal supplies to other markets especially India, which is second biggest importer. India’s imports saw whopping 450 percent hike to 1.87 million tonnes in December 2020 year-on-year. China on other hand ended up paying twice the amount for Russian coal of the same caloric value as that is mined in Australia. Moreover, the coal imported from Indonesia is of an inferior quality. While Beijing government’s decision inflicted losses on Australia initially, it actually caused more harms to Chinese power generators and steelmakers as the coal imported from other countries lacked the environmental quality that Australian coal did.

After China imposed 80.5 percent tariffs on barley, Australia started exploring new markets and it found new markets in Saudi Arabia and Mexico. There is huge demand for barley in China as substitute for expensive corn as feed for livestock. Despite the aggressive sanction, China has found to imported sizable amount of grain commodities including barley this year. Brett Hosking, chairman of Australia’s Grain Growers Association, said China imported over 350,000 tonnes during January- March 2021 despite the escalation of trade tensions between two countries. The traders in other countries, from where China will procure barley, will originally be produced in Australia, he added.

Whatever reduction occurred in the exports of barley, wine, lobsters, coal and other products, the higher purchase of iron ore and LNG at spiking prices has more than offset the losses due to Chinese sanctions. Australia appears to have diverted the exports sanctioned by China successfully to elsewhere. While China’s warnings remained just symbolic as it could not help but ended up buying some commodities from Australia that too at higher prices. The bottom line is China’s attempts of economic coercion fell flat and Australia is winning the trade war.