Prof. ST Hsieh
Director, US-China Energy Industry Forum
May 5, 2023
The Australia-China trade serves a very good case study of the reality of geopolitics vs global trade. In a perfect free-trade world, politics should not directly intervene in trade. Trade disputes should be settled by international bodies such as WTO.
Unfortunately, broadened ideology or morality concerns now prevail over the economy. For example, the US announced recently, for the sake of national security, some setback of economy is tolerable. National security can apply to any issue of concern from real military threat to defending global democracy.
The Australia-China relation turned south started “in 2017 when Canberra voiced concern over China’s militarisation of disputed islands in the South China Sea and introduced laws criminalising foreign interference that were seen as aimed at Beijing.” “After Australia called for an inquiry into the origins of COVID-19, China responded with trade curbs in 2020 that throttled roughly A$17 billion of Australian imports from coal to timber.”
The critical issues should be analyzed are:
- Was there any winner or who pays the most for this trade war?
- Now that the bilateral trades are normalizing, has China changed her behavior in South China sea?
- Does anyone know the origin of COVID-19?
Lessons should be learned:
- reviving trade is proving more challenging than stopping it in the first place,
- wariness about the longevity of the diplomatic thaw will make a quick return to pre-restriction trade levels unlikely.
- Policy consistency or continuity is essential for stability.
Australia’s exports to China hit record highs as barriers ease
Wed, May 3, 2023 at 8:58 PM PDT
SYDNEY (Reuters) – Australia’s exports to China surged to record highs in March as the Asian giant sucked in more iron for its steel industry and lowered barriers to thermal coal shipments amid thawing diplomatic relations.
Data out on Thursday showed exports of Australian goods to China hit A$19 billion ($12.71 billion) in March, a rise of 31% from a year earlier and pipping the previous peak from mid-2021.
The jump helped lift Australia’s total trade surplus to its second-highest on record at A$15.3 billion, a boon to mining profits and tax receipts.
Export volumes of iron ore lumps and iron ore fines to China jumped 24.3% and 17.7% respectively from a month earlier, data from Australian Bureau of Statistics showed.
Shipments of thermal coal to China surged 125% by volume in March from February, offsetting a drop in exports to Japan.
Beijing effectively ended an unofficial ban on Australian coal in January, allowing customs clearance for the first time since 2020 when it launched trade curbs on a series of Australian products as ties froze in the early days of COVID.
Following a leaders meeting late last year, China and Australia agreed last month to resolve a World Trade Organization dispute over Chinese barley tariffs within three months.
However, reviving trade is proving more challenging than stopping it in the first place, Reuters reported.
Normalizing China-Australia trade will take more than a political fix
Lewis Jackson and Muyu Xu
Mon, May 1, 2023 at 9:59 PM PDT
SYDNEY (Reuters) – More than three years since China first blocked a range of Australian imports in a political dispute, restrictions are easing, but reviving trade is proving more challenging than stopping it in the first place.
A leaders meeting late last year set off a thaw in relations that saw China relax restrictions on coal in January. But three months on, in March, coal imports were still a third the 2016-2019 average.
Bureaucratic inertia meant word took weeks to filter to Chinese customs officials, say traders, who had to visit eight government departments to sort permits. In February, Australia was still not in the import license computer system, say buyers.
The economics have also worsened. Australian miners have found new customers in the interim and no longer offer concessional prices on coking coal. Meanwhile, cheaper imports from Russia and Mongolia have taken market share in China.
“These things take time, there is no magic wand to bring everything back to normal, it will be a slow process over several months,” said David Olsson, chair of the Australia China Business Council.
Relations between China and Australia first soured in 2017 when Canberra voiced concern over China’s militarisation of disputed islands in the South China Sea and introduced laws criminalising foreign interference that were seen as aimed at Beijing.
After Australia called for an inquiry into the origins of COVID-19, China responded with trade curbs in 2020 that throttled roughly A$17 billion of Australian imports from coal to timber.
The sluggish resumption of the coal trade suggests that reviving the markets, logistics and expectations that greased trade in restricted products could take months if not years.
Overall, however, Australian exports to China have surged despite the curbs, rising to A$175 billion last year from A$149 billion in 2019 in large part thanks to a booming iron ore trade too vital for China’s steel mills to risk disrupting.
The centre-left Labor government has made the restoration of unrestricted trade a priority and the end of coal restrictions were an early win. Foreign Minister Penny Wong travelled to Beijing in December and the trade minister is expected within weeks to make the same trip.
Last month, the countries agreed to resolve within three months a World Trade Organisation dispute over Chinese barley tariffs. Australia’s trade minister is confident wine tariffs will follow.
One issue is a potential shortage of the Australian customs workers who certify cargoes for export. Many left when the now restricted timber log trade vanished overnight, said Frank Rudkiewicz, who is an “authorised officer” (AO) certified by the Agriculture Department to inspect export cargoes.
A NEW POLITICAL CLIMATE
Officials and exporters say competition, a desire to maintain new markets and wariness about the longevity of the diplomatic thaw will make a quick return to pre-restriction trade levels unlikely.
“Chinese coal traders see little incentive now to sign long-term contracts,” said a Chinese-based coal trader, citing high inventory and “the potential risk of the relationship turning sour again.”
In Australia, several producers of wine, timber and meat told Reuters they would not prioritise China at the expense of newer clients.
Producers who beat a path back to China will also face competitors who have had more than two years to make inroads.
Moreover, even as it works towards economic rapprochement, Australia has made clear unrestricted trade is not a signal to return to China at the expense of other markets.
And tensions between the two countries remain. Australia in February blocked a Chinese rare earth investment on national security grounds.
Foreign Minister Wong urged exporters to diversify even as she announced the deal over barley tariffs.
“We never want to find ourselves in a situation where we’re so totally reliant on one market,” Trade Minister Don Farrell said on Monday.
(Reporting by Lewis Jackson and Muyu Xu; editing by Praveen Menon and Shri Navaratnam)