Trade Continues Despite Rising Australian-Chinese Tensions
February 15, 2021 Topic: Economics Region: Asia Blog Brand: The Reboot Tags: AustraliaChinaWineTradeTrade War

Trade Continues Despite Rising Australian-Chinese Tensions

Both countries may be in the midst of a trade war, but that is not stopping most of their regular economic exchange.

The need to meet domestic demand, sustain economic growth and keep consumer prices reasonable will limit China’s ability to exert economic pressure on Australia, despite rising tensions between Beijing and Canberra. On Jan. 25, the Australian Bureau of Statistics released preliminary numbers showing that Australian monthly exports to China rose in December 2020 by 21% year-on-year — putting the annual total exports to the country at $112.4 billion, just slightly down from a high of $114.8 billion in 2019. The monthly boost in exports to China was largely driven by iron ore and wheat demand.  

  • Australian wheat exports to China totaled 600,000 tonnes ($191.2 million) in December 2020 — the highest single-month volume to any country — and 110,000 tonnes in January 2021. In the months leading up to this uptick, wheat trade between the two countries had effectively halted after warnings from China about heightened wheat inspections prompted Australian exporters to pull back on shipments in August. Despite these fears, the December wheat shipment was agreed to in September and was not turned away at the ports. 

  • The recent surge in COVID-19 cases in the Chinese provinces of Hubei and Heilongjiang has increased demand for grain imports, as did bad weather in late 2020 and the need to rehabilitate the pork sector following swine flu. 

  • Australian iron ore exports to China also rose to 40 million tonnes in December 2020, up from the 34.44 million tonnes the month before. Overall ore exports from Australia rose 25 percent in December as well, according to Pilbara Ports Authority and Australian Bureau of Statistics data. However, this was still down from the record 57.6 million tonnes of ore Australia exported to China in December 2019, reflecting the COVID-19 economic slowdown. 

  • China has avoided restrictions on Australian iron ore, seeing low iron prices as key to the viability and security of domestic industry.    

  • Amid a sustained informal ban on Australian coal in China, alternative export destinations for Australian coal also saw major boosts in shipments in December, with Japan up 27% and South Korea up 48%, likely due to a major cold snap in both countries. India’s imports of Australian coal also grew by 38% in December.

  • In the final months of 2020, China imposed informal bans on a range of Australian commodities, including copper ore, copper concentrates, lobster, coal, timber, red wine, barley and sugar. Though a ban did not materialize, leaks indicated that wheat was planned to be included as well. China has refused to offload coal and copper shipments from Australia, leaving them stranded at ports and volumes of both down substantially. But Jan. 14 leaks indicated that China was considering accepting some stranded coal cargo to ease congestion.

The uptick in Australian exports is not a sign that China is easing trade pressure on Canberra, but rather that Beijing is prioritizing domestic interests over foreign policy goals. Canberra is unlikely to substantially ease back on its confrontational diplomatic stance toward China, which has bipartisan support in Australia. This means Beijing will likely continue to impose targeted trade restrictions, escalating unpredictably to encompass select Australian sectors. China will also continue to diversify away from Australian goods where it is able. However, Beijing will be careful not to limit Australian trade to the point that it could jeopardize its economic influence over Canberra in the long term. 

Despite Rising Tensions, Australia-China Trade Remains Robust is republished with the permission of Stratfor Worldview, a geopolitical forecasting and intelligence publication from RANE, the Risk Assistance Network + Exchange. As the world's leading geopolitical intelligence platform, Stratfor Worldview brings global events into valuable perspective, empowering businesses, governments and individuals to more confidently navigate their way through an increasingly complex international environment. Stratfor is a RANE (Risk Assistance Network + Exchange) company.

Image: Reuters.