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Trade dispute between China and Australia has not extended to iron ore … yet

china and australia trade

Australia’s relationship with China, its biggest trading partner, has been steadily worsening this year. As Australia took a more assertive position on issues such as China’s incursions into the South China Sea and inquiries into and managing the origins of the COVID-19 outbreak, the country’s largest trading partner replied with diplomacy from the enclaves.

Massive Australian barley tariff bans on certain Australian beef, coal and wine inquiry restrictions are just some of the shots fired from Australia’s bow.

The mismanagement of the virus in Wuhan with the World Health Organization has made China very worried about its management, as you know, sometimes the best method of protection is attacking, said economist and trade expert Tim Harcourt from New South Wales University.

But the elephant in the room is iron ore, a commodity that China urgently requires for major infrastructure and housing projects that will provide the incentive to sustain the world’s second-largest economy.

Chinese trade attacks have so far moved away from Australia’s largest export, which is set to exceed $ 100 billion this year.

Despite all the tensions between the two countries, sales of iron ore to China in the first half of 2020 rose by more than 8 percent, with an additional bonus to Australia at a higher price.

However, BHP, Rio Tinto, Fortescue and Roy Hill are highly dependent on Chinese borrowing, and it will be very vulnerable if Beijing decides to give iron ore the same treatment as, say, barley.

“We are, in fact, supplying China with about 60 percent of its total iron ore consumption,” notes Giuliano Sala Teena, an analyst at Bell Potter.

So the status quo would be maintained for the time being only because we saw in Chinese foreign policy that they were not willing to do anything at their expense.

Increased risk

Despite this, as China is looking to make it more difficult for Australia, iron ore is already on its radar, with new customs regulations that could leave selected cargo stranded at docks if enforced.

Helen Sawczak, who ended her role as CEO of the Australia-China Business Council last month, warns that although resources are at the bottom of the goal list, they are not exempt.

She told The Business journal that I would take nothing for granted.

Businesses will re-evaluate their risk factors and at this time the political risks associated with working with China will become increasingly important.

Australia’s arch-rival – the Brazilian Vale- is on its way back after the collapse of a waste dam that destroyed its production.

But economist Tim Harcourt sees no significant danger to these latest technologies. Brazil has been completely struck by the coronavirus and has problems of governance at best, even without COVID-19.