China and its gamble of trying to choke Australia by imposing tariffs and other trade barriers on goods and products are not paying the rich dividends that the megalomaniac leader, Xi Jinping had once sought out to achieve. According to new reports, the demand for high-quality Australian wool by the Chinese public has forced the Politburo sitting in Beijing to lift the import quota on Australian wool by 5 percent. Consequently, the quota is likely to increase just over 38,000 tonnes, up from around 36,000 tonnes in 2020.
Reported extensively by TFI, the communist regime, miffed by PM Scott Morrisson’s anti-China stance in the wake of the Coronavirus pandemic had imposed heavy tariffs on barley, wine, beef, timber, lamb, and lobster.
Inebriated in the power hangover of stomping the opposition routinely, it might be too late for Jinping to now realize that Australia does hold some important cards in its relationship with China. Canberra not only has the ability to devastate the steel industry of Beijing, but also all the downstream sectors reliant on it, such as construction, infrastructure, and manufacturing. Add to it the aforementioned wool industry, for which the Chinese seem little more than just desperate, and you get the picture that Chinese are treading on thin ice.
The turnaround and desperation for the superior Aussie products come at a time when Xi’s hara-kiri ban on Australian coal has annihilated coal-based industries in China. One of these coal-based industries is steel manufacturing.
Till now, China was a world leader in steel production. It manufactured a little more than half of the strategic good. But the steel industry in China has been hit hard by the shortage of coking coal- a key raw material in steel production. So, with the lack of Australian coal, China cannot produce properly.
To compensate for this lack of Australian coal, China will be importing from Russia. And this is a disaster recipe because Chinese industrialists have invested extensively in equipment meant to work solely with Australian coal. Imports from Russia will not help here.
The shortage of coal has hit another key sector in China- electricity generation. The power sector’s inability to sustain itself in face of coal shortage has led to massive power outages in the Communist nation. Thus Australian miners are thus cashing in on the paper Dragon’s iron ore crisis.
Similarly, iron ore demand and prices in China have shot up in recent months. The Chinese President tried his level best to impose tariffs on most of the Australian products but could not target the iron ore coming from down under due to lack of alternatives.
In the first 8 months of 2020, China imported 488.2 million tonnes of iron ore, a 7.9 percent increase year-on-year. Therefore just to give the reader a little perspective, imagine if Canberra banned iron ore exports, even for a short period of three months, or placed a substantial export tax on shipments. China’s 1 billion-tonne-a-year steel industry that is heavily dependent on Australian ore will collapse imminently and in turn the Chinese economy.
To make matters complicated, the imposition of the 80.5 percent tariff on Australian barley is starting to compel Chinese buyers to shift to alternative sources for malting barley. This is likely to lead to lower returns for their products compared to the returns derived from using Australian barley.
While China might be feeling gung ho of its actions of imposing tariffs without taking a good hard look at the returns — the down under government of Morrisson has already moved on to newer pastures to offset the losses.
Reported earlier by TFI, in February last year, India had opened up its market to Australian Barley for the first time. Barley producers in Australia are now planning to export 5,00,000 tonnes of malt barley to the Indian market. Australia’s strategy is now to use the open market in India to set off the losses that it will be facing due to steep Chinese tariffs.
Furthermore, Australia’s gross value of production of wheat and other crops is expected to increase by around $220 million by 2025. Wheat and other crops are the next best alternative crop for Australian farmers and they are set to increase the plantings of them.
Australia has still not played its cards fully, whereas China has nothing left in its bag of tricks. Canberra is slowly starting to realize that it holds China’s fortunes in its hands. Beijing needs to mend its ways, or otherwise, it wouldn’t take time for Morisson to cut the umbilical cord of iron ore and coal.