Australia’s trade partnership with China may have just passed its peak, as wine exports become the latest dispute

An Australian wine store in Shanghai. (Qilai Shen, In Pictures Ltd, Corbis via Getty Images)
  • A 12-month investigation into Australian wine exports was launched on Tuesday by China’s commerce ministry amid allegations of ‘dumping’.
  • It comes after a similar investigation into Australian barley concluded earlier this year with the application of 80% tariffs.
  • Other export markets to China are facing similar obstacles, with a ban threatening a third of beef exports, while official warnings of rising racism likely to impede tourism and education.
  • With tensions deteriorating between Australian and China, experts say the trade partnership may have peaked, with agricultural exports facing growing barriers to entry in China.
  • Visit Business Insider Australia’s homepage for more stories.

China might be far and away Australia’s largest trading partner, but the relationship looks increasingly rocky.

On Tuesday, China’s commerce ministry commenced an investigation into allegations that Australian producers were ‘dumping’ wine into the Chinese market at artificially low prices.

While federal MPs, including Agriculture Minister David Littleproud, dispute the allegations, the investigation opens a 12-month window for the Chinese government to take action against Australian exports.

With China buying around 40% of Australia’s total wine exports, the investigation poses a $1.1 billion a year threat to the Australian economy. In a sign of the severity of that threat, producer Treasury Wines which has enormous exposure to China saw its share price plummet 20% immediately off the back of the news.

But the move “shouldn’t come as a complete surprise”, according to Rabobank head of food and agribusiness research Tim Hunt.

“China has often found reasons to reduce purchase of agri products from countries when tensions arise,” And its most senior diplomat in Australia warned over two years ago that if political relations continue to deteriorate, trade could suffer,” he said.

Alas, it’s not the first cracks appearing in the bilateral relationship.

Earlier this year, a similar investigation into Australian barley ended with the decision to apply 80% tariffs. Similarly, a ban on four Australian abattoirs over allegations of non-compliance is expected to cut beef exports by more than a third this year, at a cost of around $1.3 billion.

While all three trade disputes have been formally attributed as regulatory issues by China, each has had political overtones. The barley tariff hike, for instance, came hours after Australia backed a push for an inquiry into the early handling of the COVID-19 virus.

Data from Rabobank shows the long-rising value of Australia food and agriculture exports “basically stood still” in the last financial year, with China buying the lion’s share.

“We haven’t been this exposed to one market since the 1950s, when we were still joined at the hip to the UK, and that was a very different political relationship,” Hunt said.

As political tensions escalate between the two nations, the volume of Australia-China trade may be set to decline from here on out, with Hunt suggesting the relationship may have just passed its peak.

“Australia has five food and agri exports to China that can be worth over a billion dollars in any given year. In 2020, China has so far impeded or threatened to impede three of these,” he said.

Australian has certainly used China to its advantage in years gone by, sidestepping the global financial crisis in 2008 at least in part due to bumper resource exports to China.

Australia’s universities, meanwhile, have profited enormously on the back of tuition from international students, primarily from China. Owing to the unparalleled size and wealth of China’s middle class, it’s a market that now looks impossible to both grow and diversify in any meaningful way.

Indeed, diversification remains a major challenge facing much of Australia’s exports. The trade-off of rapid-fire growth has frequently been an increasing dependence on a single market.

While the global pandemic may be enough to scupper the plans of most international students, regardless of nationality, official warnings threaten the recovery.

Citing increasing racism in Australia, the Chinese government warned students and tourists alike in June off visiting. Combined, the two groups spend $24 billion a year in Australia.

Equally, as US-China relations deteriorate, Australia now finds itself between a rock and a hard place, with no easy options.