Improved trade relations with China a pleasing development

Australian exports to China were hit with several trade restrictions from mid-2020. Higher tariffs were imposed on wine and barley, while unofficial bans were placed on coal, lobsters, and cotton. Further restrictions were also placed on red meat and timber under the guise of quality concerns. As a result, Australian shipments of these commodities to China fell sharply, and in some cases, trade collapsed altogether. Prior to these restrictions, China accounted for 43% of Australian exports in 2019. This share fell sharply to 31% by the end of 2021. Despite higher trade barriers to the Chinese market, total Australian exports fared relatively well in the early 2020s, albeit with trade diverted to alternate, and less lucrative markets.

Access the property to learn more about our key pointst:

• There has been a meaningful normalisation in Australia’s trading relationship with China over the past 12 months. The removal of tariffs on Australian wine exports to China in March was the latest in a string of decisions that represent a thawing in the relationship that soured in mid-2020.
  
  
• As with the imposition of trade barriers, their removal will vary across industries. Wine producers will see the biggest impact due to Australia’s considerable exposure to the Chinese market. Other affected sectors have been more successful in diverting trade away from China, making the removal of barriers less significant.
  
  
• While these changes are not expected to have a substantial effect on the Australian economy, the signal of a more open trading relationship is a positive one. This episode has highlighted the importance of market diversification in safeguarding against the risks associated with overdependence on a single trading partner.