China’s trade sanctions: what Australian industries need to consider

By David Dickens and Mark Inston

While most of our attention this year has been focused on the COVID-19 situation, the trade difficulties that have been unfolding between Australia and our leading importer, China, have escalated.

Tensions seemed to have come to a head when a Chinese Government-backed media outlet announced China would be imposing significant trade sanctions and bans on a number of Australian exports.

If Australia must endure these rumoured sanctions, it could have a worse impact on our economy than the coronavirus crisis. Some industries would be harder hit than others but everyone would feel the blow.

Our team of experts at Hall & Wilcox is here to assess the potential industry implications, and to ensure Australian companies are prepared to manage any fallout when the insolvent trading moratorium is lifted.

How did we get here?

Political and trade difficulties between China and Australia have increased since Australia’s prevention of Huawei’s planned 5G rollout, the wine dumping issue and our Government’s endorsement of an independent inquiry into COVID-19. It appears that China is increasingly struggling with Australia’s perceived support of US attitudes to international relations.

We have already seen tariffs and bans imposed on Australian barley, beef and timber exports with rumours of further impending sanctions on barley, wine, lobsters, sugar, coal and copper.

Who will be affected?

Australian agriculture and produce industries will be likely hit with a $5-6 billion loss in exports if the rumoured sanctions are implemented. While China is a buyer of our iron ore, natural gas and coal and sends us international students to support our universities, our export industry is otherwise at its mercy.

The flow-on effect is that this trade dispute sends a message to all Chinese importers, that Australia is not a viable trading partner. The volatility of the situation means Australian exports could be frozen at the Chinese border without warning. The threat of such interruptions could drive Chinese importers to forgo Australian trade deals and seek out alternative, more reliable sources of export.

A reduction in exports would lead to subsequent declines in domestic agriculture, manufacturing, transport of goods and other industries that support Australian exports. The overall impact on Australian companies and our economy would be devastating.

Where to from here?

Tensions may escalate if China views Australia’s relationship with the US as being problematic. While Joe Biden’s presidency may provide some temporary relief through diplomacy, US-China relations may take time to improve. How we react and engage with China will undoubtedly determine whether China relaxes or tightens its hold on Australian trading. It is the Australian Government that needs to look forward beyond the short term and consider its long term engagement with China and to do what is right for Australians and the Australian economy.

How can you prepare?

As with COVID-19, Australian businesses, particularly those which export to China or are in the supply chain of an exporter, need to be ready to adapt and restructure.

At Hall & Wilcox, our team is ready to provide expert assistance and advice to ensure your business can successfully navigate whatever challenges lie ahead.

At the time of writing, Australia has signed the Regional Comprehensive Economic Partnership along with China, Japan, Korea, New Zealand and 10 other countries in the Indo-Pacific region. This is the world’s largest free trade agreement and will provide Australian industries with access to a number of major foreign trading partners, including China.

This article was written with the assistance of Amelia Pattison, Law Graduate.