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Australian Prime Minister Scott Morrison meet Chinese President Xi Jinping during the Group of 20 meeting in Osaka, Japan, in June 2019. Photo: Adam Taylor

Economy China Economy

Explainer | What happened over the first year of the China-Australia trade dispute?

China has targeted Australian barley, beef, wine, coal and cotton since Australia led calls for international inquiry into origins of the coronavirus in April 2020
Two-way trade between China and Australia is worth around A$240 billion (US$171 billion), while China buys around 39 per cent of Australia’s merchandise exports

China-Australia relations

Su-Lin Tanin Singapore

Published: 4:30am, 28 Oct 2020

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Click here for a new version of our China-Australia relations explainer, marking the one-year anniversary of the trade dispute.

Relations between China and Australia have become fraught over the past year after Canberra pushed for an international probe into the origin of the coronavirus without diplomatic consultations beforehand, and Beijing eventually responded with a number of trade blocks on wine, barley, cotton, copper, coal, sugar and lobsters. We look at the issues in this series.

What is happening between China and Australia?

China is Australia’s most important and biggest trading partner, but after Australia Prime Minister Scott Morrison led calls for a coronavirus inquiry in April 2020. Beijing has made trade moves against Australian barley, beef, wine, cotton and coal.

While many have questioned the political motives for the moves, so far, each of the actions arose out of a legitimate trade breach. China’s imposition of duties on Australia barley, for example, was a result of an 18-month anti-dumping investigation.

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The dispute also spread to other areas, with both countries warning their citizens about travelling to the other country. China warned about studying in and visiting Australia due to alleged rising racism and discrimination against people with Chinese and Asian ethnicities, while Australia warned its citizens about arbitrary detention in China.

China also visited two Australian citizens in Beijing and Shanghai in September for questioning, while Australia raided the homes of Chinese journalists in Sydney during an alleged foreign interference investigation into a local politician and cancelled their visas.

In early November 2020, China unofficially initiated a series of trade actions in quick succession, in what was its biggest move so far.

It delayed live lobster shipments arriving in Shanghai from Australia by air, just as the lobster season started peaking over the festive season and into the Lunar New Year festival early 2021. It also banned Queensland log timber for suspected pests and blocked grain exporter Emerald Grain after finding its shipments were contaminated with a grass-like weed.

In tandem, importers and exporters were verbally told to avoid the imports of seven possibly eight products, namely log timber and lobsters as well as sugar, copper, coal, wine and barley due to possible delays clearing customs, while wheat exports could also be targeted.

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No formal notice on the bans was issued by the Chinese government, and most traders heard the news from their agents, brokers and local commerce chambers and customs consultants.

Trade in these products has since ground to a halt with many orders cancelled.

Shipments that were en route were also stranded outside of ports and airports, including coal and some fruits, even though they were not on the “ban list”.

Why is the relationship between China and Australia important?

The two-way trade between the countries is worth around A$240 billion (US$171 billion), while China buys around 39 per cent of Australia’s merchandise exports, including iron ore.

Iron ore prices helped offset Australia's weakened trade with China in 2020

China buys just over 80 per cent of Australia’s iron ore, while Australian iron ore makes up 60 per cent of China’s supply. The value of that supply is likely to hit A$80 billion in 2020.

How did tensions between China and Australia escalate?

China and Australia have been locked in a heightened geopolitical dispute since April 2020 after Australia pushed for an international inquiry into the origins of the coronavirus. Australian media reports indicated Australia Prime Minister Morrison wrote to Group of 20 leaders to galvanise support for the probe. The push came after a phone call between Morrison and US President Donald Trump and just after evidence emerged Chinese authorities initially covered up the existence of the virus.

Why has the China-Australia relationship deteriorated into ‘trade war 2.0’?

Australia also did not consult China about plans for the inquiry before pursuing it internationally, which offended the Chinese government, according to a speech made in August 2020 by Wang Xining, the deputy head of mission of China‘s embassy in Australia.

Soon after the call for an inquiry, when asked if that would result in any consequences to Australia, China’s ambassador to Australia, Cheng Jingye, said the Chinese public might think twice about visiting Australia or buying its products.

How did China react?

In mid-May 2020, China confirmed it would impose an anti-dumping duty of more than 80 per cent on Australian barley exports after an 18-month investigation. The duty was a blow to the Australian barley sector, which had previously enjoyed zero tariffs courtesy of the free trade agreement between the two countries.

While the duty and investigation were in line with World Trade Organization (WTO) rules, lawyers said the duty could have been lower. Australia responded to the outcome of the investigation by saying Australian farmers were among the least subsidised in the world.

Soon after, Chinese authorities also banned beef exports from four Australian abattoirs due to mislabelling and certification issues. The ban was not without basis as the four abattoirs had a history of errors.

In June 2020, more friction ensued when China warned its citizens against visiting and pursuing their studies in Australia due to rising racism and discrimination against people with Chinese and Asian ethnicities. Chinese tourists and students are the biggest contributors to the Australian tourism and international student sectors.

What do the tariffs on Australian barley exports mean?

China is Australia’s largest barley export market, buying around 70 per cent of Australian barley.

Between 2014–15 and 2018–19, Australia sold an average of around A$1.2 billion (US$855 million) of barley to China a year.

Australia has ‘painted itself into a geopolitical corner’ with China, but what is Beijing’s trade endgame?

The diverted Australian barley trade after the imposition of the duties will result in a A$750 million (US$534 million) fall in the average Australian barley exports due to lower selling prices, according to Australian Bureau of Agricultural and Resource Economics and Sciences, with China seen as a premium market for Australian barley.

At the end of November 2020, then Australia trade minister Simon Birmingham said that the Australian government was “expecting” to bring a formal case against China at the WTO over barley anti-dumping duties. The WTO confirmed Australia had officially lodged its complaint on December 21, 2020.

What do the bans on Australian beef exports mean?

China is Australia’s number one market for beef by volume, accounting for around 25 per cent of Australia’s total beef exports.

In 2019, Australia exported about 300,000 tonnes of beef to China, worth A$2.67 billion (US$1.9 billion).

The four banned abattoirs banned in May 2020 were major producers of beef and are said to have accounted for around 35 per cent of beef exports to China.

Queensland abattoir John Dee was also blocked from sending beef to China in August 2020 due to excessive levels of chloramphenicol in its products, according to Chinese authorities.

And in December 2020, China’s General Administration of Customs said it was no longer accepting beef exports from Queensland abattoir Meramist.

Did Australia respond?

Australia disagreed it had dumped cheap barley in China, saying it would seek resolution at the WTO. It also said it was helping the beef industry to investigate and discuss the bans and denied the accusations of racism.

In July, it updated its travel advice for China, warning Australians that they might be at risk of arbitrary detention in China on alleged national security grounds. In September, China announced it had detained Australian-Chinese journalist Cheng Lei in a “residential surveillance” as she was suspected of “criminal activity endangering China‘s national security”.

This followed the departure of Australian journalists Bill Birtles and Mike Smith from China at the start of September 2020 after a short diplomatic stand-off.

01:15

China-Australia trade: Beijing set to ban nearly US$400 million worth of Australian wheat imports

Was there an ensuing trade war?

In trade terms, Australia did not respond with any specific sanctions against China, so a “formal trade war” did not take place.

After duties were imposed on barley, Australian agriculture minister David Littleproud put to bed the idea of a “war” because other exports, such as iron ore, continued to go from strength to strength.

Shipments of iron ore reached record levels in the first half of 2020 due to a rapid industrial recovery in China after coronavirus lockdowns were lifted. In June 2020alone, Australian iron ore exports reached their highest ever monthly export value at nearly A$10 billion (US$7.1 billion).

Did the tensions between China and Australia stop there?

In August, China initiated an anti-dumping and countervailing investigation into exports of cheap Australian wine into China. That investigation is expected to take around a year to complete.

At the end of November 2020, China’s commerce ministry announced temporary anti-dumping measures on Australian wine imports. The duties range from 107.1 to 212.1 per cent. The provisional duties will be applied to all Australian wine exports in containers of less than two litres.

Imposing the temporary duties ahead of the conclusion of the anti-dumping investigation due to finish in August 2021, the commerce ministry said “there is a causal relationship between [wine] dumping and material damage”.

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The Chinese commerce ministry asked for duties to be collected starting from November 28, 2020, as security deposits, in line with WTO rules.

In early September 2020, China also suspended barley imports from Australia’s largest grain exporter, CBH Group, after allegedly detecting pests in a shipment.

What does the investigation into Australian wine exports mean?

China imports nearly 40 per cent of Australia’s wine exports worth around A$1 billion (US$712 million) a year. The Chinese wine industry is pitching for a duty of 202.7 per cent to cover losses, a tax that could effectively “close the market”, according to many Australian winemakers.

China’s Ministry of Commerce has a year to complete the anti-dumping investigation, but could extend it for another six months; however, it could also complete the investigation earlier.

But under the temporary anti-dumping measures announced in November, those not specifically listed will have to pay an interim duty of 212.1 per cent. Casella Wines, known for its well-known label in China and Asia, Yellow Tail, will face a 160.2 per cent duty, while Accolade Wines, owner of Hardys Wines, will face a 160.6 per cent levy. Other well-known wine exporters such as Australian Vintage and Brown Brothers will face roughly the same duty.

This was increased to total temporary duties of up to 218.5 per cent in December 2020after the Chinese Ministry of Commerce imposed temporary countervailing duties on Australian wine on top of the provisional anti-dumping duties

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Did Australia and China try to call a truce?

Then Australia trade minister Birmingham did not speak directly with his Chinese counterpart, minister for commerce Zhong Shan, since the trade sanctions started in May 2020.

In general, diplomatic relations between the two countries have nosedived in the past five years. What occurred in April was triggered by the coronavirus outbreak, but before that, China and Australia had been at loggerheads.

This particularly focused on alleged Chinese foreign interference in Australia, with many people, particularly Chinese Australians in public service, accused of having links to the Chinese Communist Party.

China revealed its displeasure with Australia in November 2020 - nearly eight months after the conflict started - with the “release” of a list of 14 grievances to Australian media outlets, saying the actions by Australia had “poisoned” bilateral relations.

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The grievances extended to as far back as five years ago, when the relationship between the two parties began to sour. Then, Australia began to visibly reinforce its alliance with the US, while China faced strong international criticisms for its aggression over territorial disputes in the South China Sea.

China’s grievances include Canberra blocking Chinese investments, Australian politicians criticising Beijing and alleged racist attacks on Chinese and Asian citizens in the country.

Beijing also called on Canberra to “reflect on its own deeds”.

All this prompted Australian Prime Minister Morrison to take a stronger stance saying it would not give ground to any of the grievances and trade away Australia’s values.

What else has been happening between China and Australia since April?

Birtles and Smith left China over fear of being detained after unannounced visits by Chinese state security officers.

Chinese authorities also revealed several of their journalists in Australia had their homes raided in June 2020 at the same time the Australian government searched the home and parliamentary office of New South Wales state politician Shaoquett Moselmane in an investigation linked to foreign interference, believed to be from China.

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In October 2020, Australian senator Eric Abetz questioned the loyalty of three prominent Chinese-Australians at a parliamentary inquiry and demanded they condemn the Chinese Communist Party. This has triggered a backlash in Australia that politicians are targeting Australians with Chinese backgrounds.

Were any more trade or products blocked between China and Australia?

In October 2020, China made another move on Australian coal and cotton, verbally instructing state-owned power stations and steel mills as well as cotton spinning mills not to buy Australian products.

As the requests were verbal, Australia said it would investigate both incidents to confirm if they were true. The two incidents could put China at risk of breaching WTO trading rules for discriminating trade against Australia.

At the end of October 2020, China banned imported timber from Queensland and barley shipments from another Australian grain exporter, Emerald Grain. It also delayed Australian rock lobster shipments in Shanghai. China followed this with a ban on timber from Victoria in November.

At the end of December 2020, China also halted log timber from New South Wales and Western Australia after discovering "live forest pests" adding to existing blocks placed on imports from Queensland, Victoria, South Australia and Tasmania which had been in place since late October. With most of Australia’s timber exports to China coming from the six states now banned, the moves mean the log timber trade between the two countries has almost completely ceased.

China unofficially banned Australian imports of coal, sugar, barley, lobsters, wine, copper and log timber since the start of November, while China is also expected to ban imports of Australian wheat, putting a A$560 million (US$394 million) trade in doubt.

Fact-Check: do China's anti-dumping and anti-subsidy investigation claims hold up?

What does the ‘block’ on Australian coal exports mean?

In 2018-19, Australia’s exports of thermal coal for power stations and coking coal for steelmaking to China reached A$14 billion (US$10.7 billion). Coal is Australia’s third largest export to China, after iron ore and natural gas.

So far, as the “block” on coal is not formal, the Australian government is still trying to confirm its existence.

There has, however, been evidence of Chinese buyers turning away Australian iron ore orders including those already at sea, while mining giant BHP confirmed it had received “deferment requests” for its coal shipments.

China, though, increased its import quota for thermal coal by 20 million tonnes to see it through until the end of 2020 and Australian shipments of the commodity will not benefit as US$500 million worth of its coal exports remained stuck at Chinese ports.

Instead Russia and Indonesia are likely to benefit from the increased quotas, according to commodities analyst S&P Global Platts.

What does the ‘block’ on Australian cotton exports mean?

Like coal, the “block” on cotton exports is also verbal and is still being investigated by the Australian government.

Around 68 per cent of Australia’s cotton is sold to China, with exports last year reaching a value of around A$750 million (US$534 million).

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Will China ever target Australian iron ore?

There is no guarantee in this tit-for-tat rally between the two countries despite how much they need each other, especially for the supply of iron ore.

A big clue about whether China will target Australian iron ore can be gleaned from the state-run , which said in June 2020 that despite the rapid deterioration of China-Australia relations “some observers believe that Beijing is unlikely to target Australian iron ore exports due to China‘s heavy dependence on this imported commodity”.

Looking for new sources of iron ore is capital-intensive and time consuming. Chinese buyers are now looking at sources of iron ore in Africa, particularly in Guinea, to supplement its needs. Its second largest supplier, Brazil’s Vale, is also an option.

Termination of free trade deal ahead of review unlikely despite tensions, experts say

Analysts such as S&P Global are of the view that Australia will continue to supply most of the iron ore that China needs even if trade tensions between the two countries intensify.

Former Singaporean diplomat Kishore Mahbubani, who studied China in his book , said in September that he was not fully convinced China would spare Australian iron ore imports.

An analysis by Goldman Sachs said, however, both sides were too reliant on the trade to give it up.

China relies heavily on Australia’s iron ore which accounts for around 60 per cent of its imports, while Australia sells 80 per cent of its iron ore to China.

But if China were to solely buy iron ore from non-Australian producers, it could only get around 56 per cent of its current import volume, Goldman Sachs said.

Want to know more?

In every episode of the Inside China podcast, we take a deep-dive into a specific topic, mixing independent reporting and exclusive interviews to bring you unique insights into an emerging potential superpower. Now, we are featuring regular updates on the coronavirus pandemic from across the country.

Also, each week political economy journalist Finbarr Bermingham wraps up the latest developments in tariffs, diplomacy and economics from reporters and editors at the Post in the US-China trade war podcast.