Economic & Industrial

Chinese tensions costing billions

Chinese tensions costing billions
Mining News Pro - A new report from the University of Adelaide’s Institute for International Trade (IIT) has found that Australia had lost an estimated $4.9-billion in revenue to the Chinese market between July 2020 and February 2021, as a result of China’s restrictions on Australian goods.

The report, titled 'Economic Coercion by China; the Impact on Australia’s Merchandise Export', commissioned by the IIT, pointed out that China’s restrictive or "discriminatory purchasing" had affected eight key commodities: coal, copper ore and concentrate, frozen beef, wine, cotton, barley, rough wood and rock lobster.

“A fortunately timed jump in the price of iron-ore and other resources has hidden from view the dramatic costs of China’s trade war against Australia,” Dr Naoise McDonagh, lecturer at the IIT said.

“Hidden costs can make for complacent responses. This report should be a wake-up call to Canberra to accelerate its role in pushing diversification, as well as diplomatic strategies for cooling tensions.”

The report, authored by three former members of Australia’s Department of Foreign Affairs and Trade, provided the most concerted effort to date to fully quantify the true costs of China’s trade coercion tactics to Australia’s merchandise trade, said McDonagh.

“Australia is estimated to have foregone export revenue of around $4.9-billion in the Chinese market from July 2020 to February 2021 as a result of its restrictions or discriminatory purchasing,” said Mike Adams, one of the authors of the report.

“The true extent of the losses have been hidden by a boom in iron-ore prices. If iron-ore is excluded, Australia’s trade with China declined markedly in 2020 by over 23%.

“The decline is even more pronounced, at 48%, if non-iron-ore merchandise exports for January to March 2021 are compared with those for April to June 2020, just before the relationship began to sour badly.”

The report also highlighted that if losses from the eight most clearly targeted commodities are extrapolated to a full year and exports ceased, lost export revenue in China is estimated at A$23-billion.

Furthermore, the diversification has generally not matched markets lost through China’s economic coercion and discriminatory purchasing, and analysis of average monthly data on the gains in exports to third countries and the losses in the Chinese market suggest that losses are much greater when comparisons go back a year to eighteen months.

The report also noted that attempts to diversify into other overseas markets had had varied success. Barley, copper ores and, to a degree, coal exports had found new overseas customers, however, the report noted that finding new markets for wine and rock lobster had been challenging and has resulted in lower prices and returns.

“Even a return to more normal relations with China would probably fail to restore these markets, though it would certainly help. The dramatic losses in trade volumes with the nation’s largest partner demands far more urgency for improving Australia’s diversification strategy,” the report read.

“China’s politics have fundamentally shifted under Xi Jinping. Trade-based coercion will for the foreseeable future be a threat hanging over all economic flows between the two countries,” said McDonagh.

“Canberra and businesses need to weigh risks and plan long-term China risk mitigation and diversification strategies.”

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