China trade war a long time coming

Australian exporters and producers nervously waited to see if a rumoured blockade on Australian goods, including wine and rock lobsters, would take effect.

Trade Minister Simon Birmingham indicated on Friday he had received assurances from the Chinese government that no orders had been given to businesses not to accept Australian goods.

While welcoming the announcement, it remained to be seen how things would actually play out on the ground in China and whether Australian goods would have a trouble-free journey to their final destination.

Trade relations with China have deteriorated throughout 2020. The Chinese have slapped prohibitive tariffs on Australian barley, our second-largest agricultural export to China worth $1.5 billion.

China then accused Australia of dumping cheap wine into the Chinese market and launched an inquiry into the allegations, souring the relationship like a nice red turned to vinegar.

Australian beef was also dragged into the fray when imports from certain abattoirs were banned by the Chinese government.

The escalating tensions culminated last week when tonnes of Australian lobsters were left to rot on a Chinese tarmac due to significant delays in customs processing.

Rumours then spread from Chinese importers to Australian exporters that they should not expect to get any goods into the country from Friday.

It was rumoured this would apply to sugar, barley, red wine, timber, coal, lobster and copper.

The timing of announcements of the increased tariffs on barley led many to conclude that it was China retaliating for Australia's push for an independent inquiry into the origin of the coronavirus.

But to suggest that China was willing to effectively destroy what had been an incredibly profitable trade relationship over Australia's stance on the inquiry is too simplistic.

The Australian National University's Australian Centre on China in the World director Jane Golley argues China's actions have been a long time coming.

She said there had been a deterioration of Australia's political relationship with China since 2014, and the issues surrounding COVID-19 were a small part of a bigger picture.

Australia has taken an increasingly antagonistic stance when it comes to China, she said, which has not been received well in Beijing.

Prominent examples include the ban on Huawei delivering either the NBN or the 5G network and the foreign interference laws of 2018.

Professor Golley pointed to several actions of the Australian government since it backed the coronavirus inquiry which further inflamed tensions. Treasurer Josh Frydenberg's ban on China Mengniu Dairy's proposed purchase of Lion Dairy & Drinks due to national interest concerns upset the Chinese government, as it believed Mr Frydenberg was playing politics.

The proposed foreign relations bill, which would allow the federal government to veto state and territory partnerships with overseas parties and also applies to universities, is viewed as a clear attempt to limit China's power in Australia.

But perhaps of most concern to the Chinese is Australia's determination to side with the United States as it wages a trade war of its own with China.

The Trump administration has caused the United States' relationship with China to descend into acrimony.

"The United States is a world superpower. They can get away with starting a trade war with China," Professor Golley said.

"The big distinction between us and the United States is that we are not a global superpower and can't retaliate in the same way. That's why, surely, we need to take an approach that is centred on Australia's national interest, not America's."

Not easily.

The consequences of this trade spat could be massive for the agriculture and resources sectors, but also the Australian economy, meaning no one will be unaffected.

It's clear the hit to Australia will be well into the billions if the issue remains unresolved.

National Farmers Federation trade and economics general manager Ash Salardini said the current situation had already led to significant uncertainty in the agricultural sector and with Chinese buyers.

Australian producers were unsure whether to send goods to China as planned and whether they would reach their destination.

Mr Salardini said the immediate focus of the industry was to find a home for any goods that may not be able to reach the Chinese market.

Beyond that it was up to exporters to determine how the industry could diversify to not be reliant on one customer. "We make quality products, I'm sure we can find someone to buy those goods," he said.

"Also, farmers are pretty wily characters. If they see problems in one commodity or one crop they will plant another crop. Once an issue happens, over time you'll see people's behaviour change."

Mr Salardini conceded that if relations with China were not repaired it may not be possible to completely fill the hole left by China in Australia's exports with other countries. However, he was not ready to give up on the relationship just yet. Australian businesses and exporters maintained a very close relationship, he said, and would continue to communicate even if hostility between the two governments continued.

Professor Golley said it was time for Australia to better reflect on how its actions were perceived in Beijing. While she understood no government, including Australia, wanted to kowtow to other nations, Australia needed to be realistic when considering the power imbalance between it and China.

"Unfortunately the reality is that China matters far more to us than we do to them. Except in some specific markets like iron ore and higher education," she said.

Professor Golley believed Australia could avoid the situation deteriorating further by adopting a more nuanced approach to its political messaging.