CCP Trade Sanctions Caused Almost No Ripples Across Australian Economy

A photo taken shows a paddock of wheat being harvested on a farm near Inverleigh, Australia, on Jan. 12, 2021. (William West/AFP via Getty Images)

Beijing’s politically motivated trade war against Australia barely affected the overall economy, highlighting that trade with China may not be as economically essential as it appears to the country.

The Productivity Commission revealed in its Trade Review 2021-22 report that Chinese trade impediments on Australian goods decreased Australia’s real GDP (GDP adjusted for inflation), real income (gross national product), and terms of trade by less than one percent for each metric.

Most notably, real GDP decreased by a mere 0.009 percent. Meanwhile, the greatest impact was on the output from the primary production sector, which fell by 1.4 percent.

The Chinese Communist Party (CCP) imposed $20 billion worth of trade impediments on a number of goods in 2020, including coal, wine, barley, beef, lobster, timber, and cotton, in retaliation of the former Morrison governments’ tough-on-CCP policies, including demanding independent investigations into the origins of the COVID-19 pandemic.

While exports for wine and lobster were particularly affected as the industries struggled to diversify as successfully as other affected industries, the trade impediments did not impose any significant economy-wide costs on Australia.

“While these measures do not appear to have imposed substantial costs on the Australian economy as a whole, some businesses paid a heavy price,” the report said.

Lobster exporters were exceptionally concentrated on the Chinese market. Since working to enter new markets, including Hong Kong and Vietnam, export value has begun to rebound.

Barley and coal exporters were the most successful at finding other markets, the report said, while noting that despite trade barriers, beef and wheat exports were not greatly affected.

Exports to China of commodities affected by trade war, based on data from the ABS 2023 International Merchanise: Trade Customised Report. (Productivity Commission)

Destination of lobster exports before and after trade war. (Productivity Commission)

Australian Economy Thrived

“When global demand for, and supply of, goods and services remains broadly unchanged, individual disruptions generally lead to a reorganisation of trade between individual countries, rather than a reduction in overall global trade,” the report stated.

Analysis of export data from the Australian Bureau of Statistics (ABS) by the Australian Strategic Policy Institute (APSI) showed that China accounted for 29.5 percent of Australian exports in August 2022—down from 42.1 percent in July 2021.

APSI senior fellow David Uren said that most of the industries hit by Chinese sanctions, except the wine and lobster exporters, were able to thrive in new markets. He also suggested that the trade war hurt the Chinese economy more than Australia.

This illustrates the resilience of Australia’s economy in the event that it is confronted with another loss of exports to China, he noted.

The Productivity Commission estimates that the restrictions reduced the value of total exports to China by 6.7 percent while increasing the demand for Australian exports from other countries by 2.2 percent.

But at the same time, soaring prices for key Australian commodity exports such as iron ore and coal increased the value of Australian exports by 32 percent. Most of the diverted coal found itself in Japan, South Korea, and India.

In fact, on the back of huge global energy and commodity demands, Australia’s trade surplus reached over $1.3 billion in the 12 months to May, according to the ABS.

But as Beijing is gradually removing some trade impediments for coal and timber, trade to China for those exporters are gradually returning to pre-COVID levels.

Chinese Economy Cracking

Foreign Minister Penny Wong said that this positively demonstrated that the diversification of the Australian economy was underway.

“Having said that, we obviously do believe it’s in our interest and in China’s interest for these trade impediments to be removed, and that’s what I put to Wang Yi last week at the East Asia Summit,” she told Sky News Australia.

Meanwhile, various economic figures illustrate China’s current rapid economic downturn, including a growing crisis in youth unemployment and diminishing export data, as well as an admission of concern by high-ranking Chinese Communist Party officials.

Chinese Premier Li Qiang blamed foreign countries for China’s economic problems, reported Chinese state media while asserting that the Chinese economy was showing a “positive trend of recovery” under Chinese leader Xi Jinping’s leadership.

It comes as a potential China trip by Prime Minister Anthony Albanese has been the topic of much speculation while Beijing continues to detain Australians Yang Hengjun and Cheng Lei.

“The government is very concerned about Cheng Lei. I think we’re very concerned at the delay in her verdict. We’re very concerned at the length of time she’s been incarcerated. As we are concerned by Dr. Yang’s incarceration, and it’s something we raise regularly,” Ms. Wong said.

She added that the government wanted the prime minister to make a trip to China under the “most positive circumstances.”

“We want to work with the Chinese to enable those positive circumstances. And we’ve expressed our view about the importance, for example, of those trade impediments to continue to progress in terms of them being lifted,” she said.

In light of the CCP’s ongoing economic coercion campaign against Australia and its growing military threat in the Asia-Pacific region, the Australian people’s trust in China has stayed at a consistent low of 13 percent, according to a Lowy Institute poll.