Australia’s China addiction leaves it vulnerable to trade spat

Australia is the most China-reliant economy in the developed world, leaving it vulnerable to blowback from Prime Minister Scott Morrison’s calls for an independent probe into the origins of the coronavirus.

Authorities in Beijing wasted little time responding. First, their ambassador warned Chinese citizens may no longer visit Down Under or choose it as the destination to educate their children. And this week, China announced an anti-dumping probe into barley exports and the suspension of meat imports from four Australian processing plants.

The big ticket items of iron ore, coal and natural gas that China needs to build and fuel its economy have so far remained unmentioned. But the barley and beef blows—which authorities from both sides have sought to downplay—can be interpreted as shots across the bow of Australia’s economy.

Around one-third of Australian exports are shipped to China and it has been the most important export market since overtaking Japan in 2009-10. Equivalent to about 8% of entire national economic output, these exports are nearly 2.5 times larger than exports to Japan.

Major commodities iron ore, natural gas and coal are worth more than 60% of total exports to China, with natural gas becoming a more important share in recent years as Australia became a more dominant participant in the market. Rural goods combined have made up only around 10% of the export mix, with beef and barley less than one-fifth of that number.

What Bloomberg’s Economists Say

“Some of Australia’s exports, like iron ore, may be less prone to disruption threats. But agricultural and services exports—such as education and tourism—are potent targets given the labor intensity of these sectors and importance to key regions domestically.”

James McIntyre, economist

Australia isn’t alone in receiving abrupt boycotts of key trade items by China following political disagreements. South Korea, Japan and Taiwan have all experienced this power flex in recent years.

After South Korea’s Lotte Group agreed to sell the Korean government land for a U.S. anti-missile system known as Thaad in 2017, China curbed tour groups to the nation and suspended businesses of Lotte Mart stores for allegedly violating fire safety norms.

When China was locked in a dispute with Japan in 2012 about competing claims to uninhabited islands in the East China Sea, angry Chinese took to the streets and called for a boycott of Japanese goods. As relations with Taiwan soured last year, Beijing suspended a program that allowed individual tourists from 47 Chinese cities to travel to Taiwan.