When China imposed punitive tariffs on Australian barley imports last year, grain farmers feared it would decimate a A$2bn industry.
But 12 months after Beijing fired the first shots in a trade dispute with Canberra, growers have limited the damage by opening new markets in Asia and Latin America.
“It is disappointing that we got played for political purposes and we lost the premium you get from selling to China,” said Mic Fels, a farmer from Esperance in Western Australia.
“But Australian barley growers still had a good year because the global market rallied just as tariffs were applied and we found new markets.”
The experience of barley farmers has been replicated in other sectors caught up in what analysts said was a campaign of “economic coercion” waged by Beijing against Canberra. Diplomatic relations have soured since Australia pushed back against rising Chinese aggression in Asia and called for an international investigation into the origin of the coronavirus pandemic.
Coal, beef, wine, timber, cotton and seafood exports all face stiff tariffs or technical barriers, which have disrupted trade patterns and threatened to reverse a decade-long boom in Sino-Australian trade.
Goods sold to China account for more than a third of Australian exports, which makes Beijing the nation’s largest trade partner with two-way trade worth A$252bn in 2019. With scant sign of a thaw in relations, exporters are rushing to open up markets and diversify.
Their efforts appear to be paying off, as the overall impact on bilateral trade remains muted with Australian merchandise exports falling 2 per cent to A$145bn in 2020 compared with 2019.
Covid-19, record iron ore prices, changes to global market demand and exchange rate fluctuations make it difficult to assess the precise impact of the measures. But analysts suggest diversion of trade is blunting Beijing’s ability to strong-arm Canberra, and delivering a hit to China’s economy.
“For the moment Beijing’s bark is worse than its bite,” said Roland Rajah, an economist at the Lowy Institute, a Sydney think-tank. “Exports to China have collapsed in the areas hit by sanctions, but most of this lost trade seems to have found other markets.”
He estimates the value of exports to China, which faced tariffs from Beijing, has fallen by about A$11.7bn ($9bn) a year. But the value of exports of these same commodities to the rest of the world has increased by A$13.4bn, according to analysis of trade statistics.
Rajah cites the example of coal, the most valuable commodity hit by technical barriers. The annual value of Australian exports to China has fallen by A$6.5bn since port restrictions were imposed in September 2020 while exports to the rest of the world have increased by A$9.1bn.
The volume of total coal exports fell 7.6 per cent to 205.4m tonnes between October 1 2020 and the end of April 2021, according to cargo tracking data from Braemar ACM, a global shipbroker. Strong growth in exports to India, Europe and Latin America helped compensate for the loss of the Chinese market.
“Australian exporters have done a good job in diverting coal shipments to markets outside China while China has imported more coal from Indonesia, Russia, Mongolia and South Africa among others,” said Abhinav Gupta of Braemar ACM.
Beijing’s pivot to new coal suppliers is hurting Australian producers, which are losing the premium once paid by Chinese customers. But it also harms Chinese power generators and steelmakers, particularly since Australian coal is often of better environmental quality than competitors.
“China is bearing costs from its trade diversion policy because it is not buying from the most efficient customer or getting as high-quality products,” said Mark Melatos, from the University of Sydney.
Australian barley exporters have also switched to new markets since China introduced 80 per cent tariffs in May 2020 following an anti-dumping inquiry.
“We’d already started looking at new markets during the [anti-dumping] inquiry, although this had to be done remotely due to Covid-19,” said Jason Craig at the CBH group, a grain growers’ co-operative.
CBH reopened the Saudi Arabian market and sent its first shipment to Mexico last year, which cushioned the blow from losing China. However, these new markets did not pay the premium that Chinese buyers did, resulting in a loss to the entire industry of about A$400m.
Not all sectors pivoted so effectively. When Chinese customs officials left A$2m of Australian lobsters to rot at Shanghai airport in November for what they said were safety checks, a A$750m-a-year live export industry was brought to a shuddering halt.
“The big difference is the Chinese paid twice as much as other markets for live lobsters,” said Matt Taylor, chief executive of the Western Australia Rock Lobster Council.
The industry has diverted lobsters to South Korea, the US and across Australia but opening new markets has been challenging in a pandemic.
Similarly, Australia’s wine industry has been hammered by Chinese tariffs of up to 218 per cent, which caused exports to sink 96 per cent year on year to just A$12m between December and March.
“Rock lobsters, wine and now table grapes have been hit hard because China was the only practical market to take the volumes exported by Australian producers,” said Jeffrey Wilson at the Perth USAsia Centre, a think-tank.
But the rise in commodity prices over the past year has helped producers adjust to the loss of the premiums paid by Chinese customers, he added.
“Rather than terminating Australian exports, what we have instead seen is global markets readjust around the bans. There will always be a market for almost all Australian exports, even if it’s at a slightly lower price.”