China is threatening billion dollar suspensions on 7 major Australian exports from today, including lobster, wine and timber

  • China is expected to suspend trade on seven key Australian imports on Friday.
  • Reports have suggested that Australian wine, coal, lobster, sugar, barley, timber, as well as copper ore and concentrate are on the table to be suspended.
  • While Chinese authorities have denied the reports, Chinese state media appears to have confirmed it, with analysts expecting the move is being used to gain leverage.
  • Visit Business Insider Australia’s homepage for more stories.

The relationship between Australia and its largest trading partner continues to steer towards the rocks.

On Friday, China is set to level a whole new set of trade restrictions on seven Australian exports, despite the Chinese Communist Party (CCP) rejecting the claims.

On Thursday, Chinese state media appeared to confirm a suspension of Australian wine, coal, lobster, sugar, barley, timber, and copper as both ore and concentrate.

In an article titled ‘Australians nervous at losing Chinese market’, The Global Times wrote of “Australia’s need for the Chinese market amid worsening diplomatic ties and its economic consequences.”

“Analysts warned that Chinese consumers’ confidence in Australian products would significantly drop if Australia continues to sabotage bilateral relations, which would cost Australia its best and biggest market, jobs and an opportunity to quickly recover from the pandemic,” Global Times staff wrote.

It marks the first real acceptance from the Chinese state that the restrictions are imminent.

Reports have flown since Monday that orders have been made to target more Australian exports, after an anti-dumping investigation was launched into the country’s wine exports.

Given the sensitivities of going after a trading partner and the risk of breaching World Trade Organisation (WTO) by doing so, orders to suspend or restrict trade are often verbal in nature and difficult to confirm.

China’s Ministry of Commerce has denied the reports, as have officials to inquiries from the Morrison government.

“China has denied that is what they are doing and I can only take that at face value out of respect for the comprehensive strategic partnership we have with China and to work through the channels that we have under that relationship to address the issues that have arisen,” Prime Minister Scott Morrison told Australian media on Thursday.

“Now, those issues are matters that the Trade Minister and I obviously have concerns about and are working closely with industry to pursue the appropriate channels within the relationship to seek to get some clarity and some resolution of those.”

Commodities cross a new line in the Australia-China trade dispute

But despite the political doublespeak, it’s clear that the bilateral relationship is languishing under the surface.

From official investigations and sky-high tariffs to formal warnings discouraging tourists and students from visiting Australia, there is an undeniable tension between the two nations.

However, it is the new focus on commodities that will raise the biggest concerns.

“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,” IBISWorld senior industry analyst Will Chapman said.

Until now both it and iron ore, two of Australia’s largest exports, have avoided the collateral damage of the fledgling trade war. China buys almost $80 billion worth of iron and nearly $14 billion worth of coal in a single year.

“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,” Chapman said.

If that is its intention, China isn’t being shy in finding leverage. Take Australian copper, of which 90% is exported and half of that to China alone. Accordingly, the suspension of copper alone would cost Australia $3 billion and hamstring the industry more broadly.

“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,” Chapman said.

Companies and entire industries find themselves in the crossfire

It’s been suggested that previous attacks on exports have been politically motivated after Australia threw its support behind an investigation into China’s early handling of the coronavirus.

Whatever the reason, “the restrictions pose significant challenges for Australian businesses caught in the crossfire”, Chapman said.

Treasury Wines, for example, is deeply embedded in the Chinese market. It warned investors at its AGM this week that it is preparing for “a range of potential outcomes from mild to severe tariffs” to come out of the current investigation into alleged ‘dumping’. Despite bracing for it, chief executive Tim Ford said Chinese authorities hadn’t notified the company of any new restrictions.

Such announcements, not to mention the tariffs themselves, however have the power to move the company’s daily share price by double-digit percentages and shut down its core market.

The potential impact, however, stretches far beyond individual companies. Punitive 80.5% tariffs on Australian barley, and the banning of its largest exporter, have the ability to hurt entire industries.

Consider that more than half of Australia’s fishing exports land in China, and more than 93% of its unprocessed timber and the implications are enormous.

All while Australia tries to navigate its economy out of a recession.