Voice of Commonwealth

China’s trade war could hit Aussie iron ore following Morrison’s cancelling of Victoria’s B&R Initiative

Share

China’s growing assertiveness and aggressive trade policies are not only a big worry for Australia alone, but also for the entire Commonwealth of Nations.

The latest in the on-going tensions between Australia and China is the potential threat posed by China to hit hard on Australia’s iron exports business, particularly, after the Morrison’s government’s cancellation of Victoria’s Belt and Road Initiative. 

China could retaliate to Australia by tit-for-tat cancellation of a major deal by aiming at all-important iron ore exports, a leading economist warns.

More bans and tariffs on Australian exports to China could triggered off from a recent federal government move in the context of ongoing tensions between the two nations, and fears over all-important iron ore sector could be suffer heavy losses.

Mounting tensions

In an analysis of geopolitical risk, AMP Capital chief economist Shane Oliver concluded that the tensions had been building up since 2018 as the Asian superpower was banned from participating in Australia’s 5G rollout.

The relationship became much more strained last year following Australia joined calls for an independent inquiry into the source and the origin of coronavirus, antagonising China to clamp punitive measures on exports including wine, barley, beef, lobster and coal.

Dr Oliver states that the tensions could be escalating again following the Morrison government last month cancellation of Victoria’s Belt and Road Initiative with China, warning it could result in a further escalation in bans and tariffs.

“So far these have not had a major macroeconomic impact because the value of the products affected is small (less than 1 per cent of GDP) and the impact has been swamped by the strength in iron ore exports and prices,” he said.

Australia accounts for half of iron ore exports globally and Dr Oliver says there is insufficient iron ore supply from other countries for China to move to other sources. However, it could become “more of an issue over the longer term if the tensions continue to worsen”.

“This may already be showing up as a risk premium in Australian assets … any easing of tensions could boost the Australian dollar and Australian shares, but it could also go the other way if tensions escalate,” he said.

CommSec economist Ryan Felsman said the relationship was also likely under further strain by Defence Minister Peter Dutton this week revelation that the federal government was considering whether to force Chinese firm Landbridge Group to give up its lease to the Port of Darwin.

There are also huge concerns that military conflict could erupt, at any time, over some in China threatening to reunify Taiwan by force.

Data released indicated that Australia’s exports to China increased by 16.8 per cent to $13.4bn last month off the back of record iron ore export volumes as China spent big on infrastructure construction as part of its COVID-19 stimulus measures, which have shot up the price of the steelmaking commodity to record highs.

“Of course there has also been talk about China curbing some of its production, particularly around pollution, and I have also heard that there may be down the track some soft-targeting of iron ore from Australia given trade tensions,” Mr Felsman told NCA NewsWire.

Brzil, massive Simandou project in Guinea and Africa could become the potential alternative sources of iron ore, although Australian iron ore is still the highest quality iron ore producer on the planet.

What is obvious is the fact that China’s increasingly assertive nature and aggressive trade policies are of a huge concern not only for Australia and Asia-Pacific region, but also for the entire Commonwealth of Nations.

The answer and long terms solutions for such issues could be in the strengthening of the trade ties among the block, perhaps, in a custom union, unleashing the block’s potential as the second largest economy of the globe.   

Read more

More News