The trade war between the US and China is well known by now, but the US is not the only country China is currently feuding with. In fact, the relationship between China and Australia is also at risk. While the Australian economy is markedly smaller than that of the US, bad China-Australia trade relations can still impact international trade.
The conflict began in April after Australian Prime Minister Malcolm Turnbull advocated for an independent inquiry into the origins of COVID-19. In response, China launched an anti-dumping investigation into Australian wine exports and imposed trade restrictions on Australian-sourced goods, such as an 80.5% tariff on barley exports and a ban on Australia’s biggest grain exporter.
Moreover, the China-Australia Free Trade Agreement (ChAfta) has just passed its fifth anniversary, calling for a review of the deal. Unfortunately, neither side seems inclined to renew the deal anymore. With a population of over 1.4 billion and an economy that is the second largest in the world, China is much larger than Australia and thus has a much higher capacity to hurt Australia.
However, more than 60% of China’s imported iron ore comes from Australia, and the country's second-largest supplier, Brazil, is suffering heavily due to the COVID-19 outbreaks in its mines. Thus, if the agreement does not get renewed, both sides can expect negative consequences.
As worrying as the situation is, things probably will not get any worse. Australia has shown some restraint, either because they have chosen to take the high road or are too afraid to retaliate. Furthermore, even if the deal does not get renewed, it would need something much more drastic for the trade dispute to get worse. But all of this provides little comfort to small and medium-sized enterprises (SMEs) in Australia that need to be sure they can get their goods to their destinations without suffering from punitive tariffs.
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