China’s Trade Sanctions Create New Markets for Australian Exports
Investors watching the Australian market have been alarmed at the severity of recent Chinese trade restrictions on a variety of Australian exports, with some investors expressing concern that the sudden bans and tariffs would damage the Australian economy.
In fact, the opposite is proving to be the case, and investors can be reassured that Australia’s economy is sound and continuing to grow in spite of what are really short term setbacks.
China is Australia’s largest trading partner and buys over a third of all our exports, totalling over AUD$150 billion annually. For largely political reasons in November 2020, China imposed import bans and heavy tariffs on a range of Australian exports. These restrictions affected AUD$20 billion of key Australian products across a variety of industries.
The bans sent shock waves through affected Australian industries including mining, agriculture and aquaculture sectors. However, industry bodies reacted swiftly and not only found new markets for many of these exports but did so at higher prices in some cases.
Notable new markets include South Korea, Vietnam, India, Pakistan, Turkey and Japan for Australian coal, taking up the lost 20% previously bought by China. Many agricultural products, including barley, timber and cotton have found new markets, sometimes for the first time. Others like wine and seafood have been re-assigned to domestic buyers.
Interestingly, iron ore, Australia’s No.1 export to China has not been affected. China, heavily reliant on Australian iron ore for its own economy, imposed no bans on this commodity. BHP, our primary iron ore exporter, reports not only record volumes shipped to China, but also at higher prices than previously. This has offset some of the economic impact on our net terms of trade from the other banned products.
Overall, the sanctions imposed by China have only dented our gross exports by less than 3% for the December quarter, 2020. What was initially feared to be a major hit to the Australian economy has turned out to be a minor inconvenience, and one that is quickly being reversed as we enter 2021.
So, for Australian exporters, the silver lining to China’s trade bans has been an opening of new markets, an increase in trade volumes and, in some cases, a boost to export incomes at a time when the economy needs every positive initiative it can find.
China’s politically-inspired sanctions look like boosting Australia’s economy and depriving China of some of the world’s best quality commodities and agricultural products.
Australia is indeed fortunate that, as a major exporting nation, our economy and hence our prosperity, is buoyed by access to international markets so readily. Such swift response to adversity provides confidence to our investors, whether corporate or individual.