Article by Tarric Brooker courtesy of News.com.au
Prior to the pandemic, Australia’s relationship with China was at times strained, but generally uneventful. Despite Beijing giving federal cabinet the silent treatment on multiple occasions, the flow of trade between Australia and China continued relatively unimpeded.
But in the more than 18 months since the pandemic sent Wuhan into the world’s first Covid-19 induced lockdown, Australia has endured the diplomatic equivalent of being “chewed up and spit out and booed off stage” to borrow a phrase from rapper Eminem.
After Prime Minister Scott Morrison pressed for an investigation into the origins of the coronavirus pandemic, Australia continued to draw Beijing’s ire.
As the theory of a ‘lab leak’ origin of the pandemic continues to firm as a plausible explanation, the Prime Minister’s calls for an investigation appear to be all the more justified.
But Beijing certainly does see things that way.
Instead its attacks on Australia’s trade interests and the generally one sided war of words between Beijing and Canberra has continued to periodically escalate.
Up until recently, Beijing hid its true intentions behind thinly veiled and spurious claims of defective Australian produce or punitive tariffs. But in recent weeks the pretence has been dropped, at least for a moment, with Chinese officials finally bluntly confirming Beijing’s true intentions.
In early July, Zhao Lijian the Deputy Director of China’s Ministry of Foreign Affairs, confirmed that Beijing has targeted Australia for economic punishment.
When he was asked about a drop in Australian agricultural exports to China, Zhao made it clear Beijing had deliberately targeted Australian goods.
“We will not allow any country to reap benefits from doing business with China while groundlessly accusing and smearing China and undermining China’s core interests based on ideology.”
But even as Beijing continues to decimate a number of vulnerable export industries such as shellfish and wine, there is one Australian export industry that remains all but untouchable — iron ore.
Despite the immense blow Beijing’s punitive trade actions have dealt some export industries, iron ore exports have ensured that the value of Australia’s export trade with China has only continued to rise.
According to figures from the Australian Bureau of Statistics, a record high $12.3 billion worth of iron ore was exported to China alone in the month of May.
To put that into perspective, in 2019 international tourism injected an estimated $47 billion into the economy.
For better or worse the iron ore industry is currently Australia’s Atlas (the Greek titan who held up the world), effectively holding up the rest of the economy.
Some in Beijing would no doubt like nothing more than to take that away from Australia, cutting our exports off at the kneecaps and sending our economy spiralling into a long and difficult recession.
Thankfully for those of us who wear the green and gold, it’s just not possible for China to kick its nasty Australian iron ore habit without the mother of all withdrawal effects.
In 2020 China imported more iron ore than any other nation in the world by an enormous margin, importing 75.4 per cent of global import supplies. The second placed iron ore importer Japan, imported a total of 6.1 per cent of global imports.
In terms of iron ore exports there is a similar mismatch in the relative sizes of the major players. In 2020, Australia exported 56 per cent of the world’s iron ore, followed by Brazil on 18.4 per cent.
To put this supply and demand balance into perspective, if Beijing managed to secure the entire exportable global supply in an attempt to cut out Australia, it would manage to fulfil only around 59 per cent of its total iron ore import needs.
As long as Beijing continues to pursue a construction led economic growth model, China will continue to boost the Australia economy for the foreseeable future, whether it likes it or not.
In the 2021-22 federal budget it was assumed that iron ore prices would return to around $55 US dollars per ton in the coming financial year. This was a prudent move by Treasurer Josh Frydenberg given the uncertain circumstances, to ensure that revenues from iron ore did not surprise to the downside.
However, if a recent forecast from Swiss investment bank Credit Suisse is correct, the federal budgets coffers could be seeing a positive surprise for years to come.
Under the prediction iron ore prices will sit around $144 US dollars per ton in 2022, before gradually falling to $70 US dollars per ton in 2025.
While this represents a significant drop from the current near record high prices of around $220 US dollars per ton, the entire period of their forecasts predicted prices above those assumed in the federal budgets estimates.
When Beijing first started targeting a wide array of Australian export industries, there were concerns it could begin to significantly undermine the nation’s economic recovery from the pandemic.
But as Australia’s miners, farmers and manufacturers find new destinations for their products, it hasn’t nearly been the blow that it could have been.
Beijing may not want to boost Australia’s economic recovery as it attempts to emerge from the pandemic, but as long as the status quo continues, its imports of iron ore at highly lucrative prices are doing just that.