Australia has emerged from recession. Now he must avoid a trade war with China

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Now the country must keep its precarious recovery on track while juggling a deteriorating relationship with China, its biggest export market.

Australia’s economy grew 3.3% in the three months ended September compared to the previous quarter, the Australian Bureau of Statistics said on Wednesday.

The recovery was driven in large part by improved household spending, with Covid-19 restrictions having been steadily lifted in most countries. (The main exception was the heavily populated state of Victoria, which was strictly on lockdown for part of the quarter due to a resurgence of the coronavirus.)

“As the governor of the Reserve Bank said this morning, ‘we have now turned the corner and a recovery is underway,'” Treasurer Josh Frydenberg said on Wednesday, adding that “many challenges remain to be seen. rise “as in the rest of the world continues to fight the pandemic with new restrictions.

Canberra’s tensions with Beijing could also cast a shadow over the recovery. Speaking to reporters on Wednesday, Frydenberg called the dispute with China “a very serious situation.”

“China is our number one trading partner. Many Australian jobs are based on trade,” he said, adding that Australia was looking for free trade agreements with other partners around the world. – including the European Union – with the aim of reducing the risk.

“I am very optimistic about the opportunities for our exporters around the world,” said Frydenberg.

Economists, meanwhile, say the ongoing trade dispute has yet to escalate to the point of posing a real threat to the Australian economy.

Relations have deteriorated since Australian Prime Minister Scott Morrison called for an international investigation into the origins of the coronavirus pandemic in April, a move Beijing has called “political manipulation”.

The trade struggle is ‘baffling’

Since then, the two sides have argued over several issues, including trade. China has slapped Australian winemakers with high tariffs and banned or taxed exports of other products, including beef and barley.

An all-out trade war with China would be devastating for Australia. The world’s second-largest economy is Australia’s largest trading partner, with trade between the two valued at A $ 215 billion ($ 158 billion) in 2018, according to official statistics. If nearly all trade between the two were to be cut off, it would cost Australia some 6% of GDP, according to researchers at the University of Western Australia and the Australian National University.
China's tariffs slam the door on Australia's largest wine export market

“Any deterioration in trade relations is disconcerting,” economists from Oxford Economics wrote in a report last month. Exports of goods and services accounted for 22% of Australia’s GDP in 2019, of which around a third went to China.

The trade dispute has already shaken some industries: Australian winegrowers have denounced the recent tariffs as extremely damaging and they have been forced to seek new buyers in America and Europe.
But the extent to which the struggle has harmed the agricultural sector more generally is unclear. Ben Udy, Australian and New Zealand economist at Capital Economics, pointed out in a recent research note that the country’s historic drought has likely played a role as well. role in harming these industries.

Economists also say the damage can be fairly contained as long as tariffs don’t spread to large industries.

“At the moment, China’s trade bans target hot spots that hurt relatively small export sectors, such as wine, beef and other areas,” said Hans Hendrischke, professor of Chinese business and management. at the University of Sydney. “These industries may suffer badly or even be forced to restructure. This is more a problem of political pressure than generalized economic pressure.”

Could mining be the next target?

Mining materials, mainly iron ore, represent a much larger share of Australian exports. Economists from Oxford Economics noted that 68% of Australia’s raw material exports went to China last year.

Sean Langcake, one of the authors of this report, told CNN Business that such restrictions are unlikely, given the reliance of the Chinese steel industry on them.

Although China has not officially announced restrictions on Australia’s mining industry, there have been some signs of tension. Australian media reported last month that hundreds of millions of dollars in coal are being held off the coast of China. Although not as important as iron ore, coal remains a major export to China from Australia.

“We will work on these issues with respect with the Chinese government, as we do,” Morrison told reporters late last month when asked about the shipments. “There are obviously tensions there. But these tensions are not resolved by Australia giving up its sovereignty.”

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