China-Australia relations: consumers pockets on both sides will foot the bill for ‘trade battle’, expert says

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Australia has taken its year-long conflict with China international by lodging a complaint over the 80.5 per cent anti-dumping duties imposed on its barley with the World Trade Organization in December. Photo: Bloomberg

Relations between China and Australia have become fraught over the past year after Canberra pushed for an international probe into the origin of the coronavirus without diplomatic consultations beforehand, and Beijing eventually responded with a number of trade blocks on wine, barley, cotton, copper, coal, sugar and lobsters. We look at the issues in this series.

Everyday consumers and traders in China and Australia will ultimately pay the price of the political conflict between the two countries, even if the World Trade Organization (WTO) steps in to arbitrate the trade disruptions triggered by the tensions, according to a leading international trade expert.

Australia has taken its year-long conflict with China international by lodging a complaint over the 80.5 per cent anti-dumping duties imposed on its barley with the WTO in December.

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In March, Canberra said it would escalate the resolution process by asking the global trade body to establish a dispute-settlement panel after failing to resolve the complaint informally with China in late January.

If Australian barley is shut out of China for two or five years, it’s really going to struggle to recoup its market share
Bryan Mercurio

China imposed the duties in May – after an 18-month investigation – soon after Australia pushed for an independent inquiry into the origins of the coronavirus, with coal, wine, lobster, log timber and cotton also suffering setbacks during the dispute.

“If Australian barley is shut out of China for two or five years, it’s really going to struggle to recoup its market share,” said Bryan Mercurio, a professor of law at the Chinese University of Hong Kong.

“If Australian wine is kept out of China for probably even only one year, buyers will have moved on, wholesalers would have moved on.

“And I think it’d be almost impossible to recoup the market share they had prior to this trade conflict.”

Barley dispute going to WTO as headwinds loom in Australia’s alternative markets

If the WTO outcome is favourable to Australia, China will have to reverse the anti-dumping duties and, assuming the resolution has not been stretched out, Australia’s market share in the Chinese market has the potential to recover.

If China does not comply and Canberra retaliates with tariffs on Chinese goods – which the WTO will allow – Australian consumers will suffer when prices of their everyday goods made in China, such as clothes, laptops and phones, rise.

“While we do say that the WTO system is binding and enforceable, no army is going to be sent in and force China to drop illegal anti-dumping duties,” Mercurio said.

“But the system does allow for Australia to take what we call retaliatory action, up to the amount of harm that it is being caused by the dumping duties. And what that means is simply raising tariff rates on Chinese goods coming into Australia to that same dollar figure.”

The US-China trade war has shown how many US importers have passed down the tariffs to American consumers, although some sectors themselves such as the steel and aluminium bore the brunt of the increased costs.

Likewise, Chinese importers and consumers too will suffer, Mercurio added, although so far , the targeted products such as lobsters and wine have replacement options from alternative markets or are discretionary consumer items.

Amid the tensions, Chinese importers have to find new products to meet domestic demand and overhaul their operations, but goods from other countries too, may then become more expensive for Chinese consumers.

Trade is one part of the battle. It’s an important part. It’s a very visual part, we can see it in the newspapers. But it is only a part
Bryan Mercurio

Ultimately, the trade wars between the US and China, and now China and Australia, are less about trade disagreements and more about the clash of the two titans, China and the US, and countries like Australia supporting its ally, the US in this case, according to Mercurio.

“Trade is one part of the battle. It’s an important part. It’s a very visual part, we can see it in the newspapers. But it is only a part. And I don’t see any dispute settlement panel, or even really diplomatic negotiations on trade, resolving the larger issues revolving around statecraft,” Mercurio added.

“And in this circumstance, I’m a little bit sceptical that China and Australia will de escalate and cool down simply on the basis of one WTO panel decision.”

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This article originally appeared on the South China Morning Post (www.scmp.com), the leading news media reporting on China and Asia.

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