It appears that China has now focused its retaliatory measures on Australia, banning traders from buying Australian commodities that span across at least seven categories, as tensions between the two trading partners heat up to an all-time high.
People familiar with the situation have revealed to Bloomberg that the Chinese government has barred commodity traders from importing several key Australian goods, including copper ore, timber, coal, barley, sugar, lobster, and wine, which is expected to take effect last Friday. The sudden notice by the Chinese government was relayed via meetings with several major traders over the past several weeks, noting that iron ore, which is Australia’s biggest export to China, will be the only commodity exempt from the measure.
The sudden order suggests that ties between the two countries have deteriorated, especially after Australia blocked Huawei Technologies Co. from erecting its 5G network back in 2018 due to alleged national security concerns. Then back in April, Australia’s Prime Minister Scott Morrison followed US President Trump’s footsteps and ordered an independent probe regarding the origin of the coronavirus. These measures have certainly led to the downfall of relations between the two countries, with China appearing to be determined to punish Australia.
Even before the latest escalation of tensions, China had already barred Australian meat imports from four of the country’s main slaughterhouses, issued 80% tariffs on barley, suspended cotton purchases, and delayed lobster imports at clearing customs. In addition, China has also prevented Australian lumber from entering the country due to pests that may harbour in the timber, as well as ordered Chinese power stations and steel mills to halt the usage of Australian coal.
Up until now, China has been Australia’s main trading partner, accounting for over A$150 billion worth of exports between 2019 and 2020. The timing of the latest Chinese measures could not have come at a worst time though, given that Australia is currently suffering from the worst recession in nearly 30 years. Indeed, Australia is heavily reliant on China’s economy for purchases of its exports, and even finalized a comprehensive free-trade agreement between Beijing back in 2015. However, Australia’s Huawei ban and the imposition of foreign interference laws, coupled with the latest coronavirus origin probe appear to have finally severed the friendly trade ties between the two countries.
Information for this briefing was found via Bloomberg and the ABS. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.