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Australia The collateral damage of Australia's trade war with China

00:25  26 april  2021
00:25  26 april  2021 Source:   abc.net.au

When it come to China, the US need to figure out which fights are principled, and which fights are petty

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China ’ s widening trade actions against Australia have disrupted exports worth up to bn a year, according to new analysis, sparking calls for the Morrison government to seek a reset in the relationship to forestall further economic pain. While it is difficult to quantify the cost of the trade war , research by the Perth USAsia Centre at the University of Western Australia shows the total value of exports to China from the seven industries affected by declared and undeclared sanctions was .7bn last year.

China is targeting a raft of Australian industries, including barley, wine, cotton, coal and beef. A trade spat bubbling away for months between China and Australia is threatening to boil over with growing calls for the Government to consider action at the World Trade Organization. In its latest blow, China has blocked timber exports from two more Australian states, South Australia and Tasmania , after bans on Queensland and Victorian timber were introduced in the past two months.

Over the past year, China's trade sanctions have hit industry after industry.

More is at stake than exports alone.

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At a plant near Hobart airport, workers sort southern rock lobster by size, colour and grade.

About 10,000 creatures are in the tubs here, 7,000 tonnes of the delicacy.

Until recently, China accounted for 96 per cent of sales of southern rock lobster.

"There's a very long history in China with our species of lobster," says Michael Blake, who runs the processing facility.

"It's red, its name translates to dragon in Chinese, and it is prestige in China. Their way of saying someone's very important is to go out for a dinner and buy them one of our expensive lobsters."

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Australia ' s economy is at risk of becoming collateral damage in the escalating US- China trade war , economists warned, after President Donald Trump confirmed China would be punished by tariffs on $US200 billion of US imports. China is expected to swiftly retaliate against Mr Trump's 10 per cent tariffs Shiro Armstrong, an economist specialising in Asia at the Australian National University, said with Mr Trump also threatening to impose tariffs on Japanese cars, Australia ' s top three export markets were on the brink of entering a risky international economic clash. "We could quickly descend into a

Australian Prime Minister Scott Morrison on Wednesday warned that " collateral damage " from trade spats between China and the United States were hurting smaller countries and threatening the global economy. In an unusually public warning to allies in Washington, Morrison said the "world' s most important bilateral relationship –- the US- China relationship" had become "strained". " Trade tensions have escalated.

Last November, exports to China stopped dead. Losing the market has been devastating for businesses.

Amid growing hostilities, China hit Australian industries with a raft of trade sanctions and accusations against Australian products.

In a shock move, Chinese authorities claimed a sample of a rock lobster contained excessive levels of the heavy metal cadmium.

Trade was effectively shut down, with tonnes of live lobster worth millions of dollars stranded on the tarmac in China awaiting clearance.

"I was extremely surprised that southern rock lobster, being a cold-water species, would have cadmium levels in them," Mr Blake says.

Four Corners understands testing by Australian government agencies has found no evidence of contamination in southern rock lobster.

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Australian Prime Minister Scott Morrison has been critical of of China ' s Xi Jinping and ruffled feathers by calling for an inquiry in the origins of the Covid-19 outbreak. Photo: Scanpix. The worsening trade war between China and Australia is causing serious trouble for the dry bulk market.

Australia ' s escalating trade row with China appears locked in a stalemate with no easy solution, according to one expert. RBA chief worried trade war will damage economy. Reserve Bank of Australia Governor Philip Lowe has warned the trade war between China and the US is the biggest single threat to the global economy.

Without China, prices have collapsed. Lobster fishers who were receiving $80 or more per kilo are now getting paid as little as $25 — and barely covering costs.

There are about 150 boats in the Tasmanian lobster fleet – Mr Blake fears a third will have to exit the industry.

"I feel a bit more like a counsellor than I do a [lobster] processor at the moment," he says.

"I'm getting phone calls every day … only last night, I had a fisherman on the phone crying to me, wondering how he's going to pay his bills, and this is only the start."

Lobster is just one of a raft of industries hit by China's trade sanctions, including beef, wine and barley.

Professor Rory Medcalf, who heads the National Security College at ANU, believes China is trying to coerce Australia into "essentially supporting China's interests".

Although China maintains its actions are legitimate, there is a widespread view that the sanctions are being used as a weapon – to punish Australia for adopting policies and positions that China doesn't like.

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It’s a clear sign of Australia ’ s vulnerability to a slowdown in China that’s being exacerbated by U.S. tariffs. And if that wasn’t enough, the Aussie’s set to remain under pressure as the crisis engulfing Turkey drives a flight to safety and the U.S. dollar. “We’re No. 1 on the list of collateral damage in Even as the world lumps Australia with China , direct hits from a trade war aren’t being felt in Sydney. China dominates Australian shipments of iron ore to produce steel for infrastructure and housing, and it also fuels growth in its education exports, but these industries are of almost no relevance to the U.S

The collateral damage is spreading. The global trading system is under real pressure. Global growth projections are being wound back," he said, speaking in Sydney. According to a poll released by respected Sydney think tank the Lowy Institute on Wednesday, only 32 percent of Australians say they trust China -- a 20 point fall versus 2018. Just 25 percent of respondents said they had confidence in Trump. Morrison' s conservative government was re-elected in May, largely on promises of continuing the Australian economy' s almost 28 years of near-continuous growth.

"It looks very much like punishment to me," says Professor Jane Golley, director of the Centre on China in the World at ANU.

"That's only going to get worse if things continue as they are."

Mr Blake remembers when his lobster was enjoyed at the highest level of the Chinese regime.

"When China's President Xi Jinping was here, we actually supplied from this facility the lobsters for the official banquet that he had with the Tasmanian government," he says.

Now it's come to this.

Stock that would have commanded premium prices as a live export to China is now filling lobster rolls being sold at local sporting matches and in vans around the country.

More than 2,000 kilometres north of Hobart at Casino, in the heart of the NSW Northern Rivers beef belt, another business is counting the costs of the trade war.

Beef was Australia's biggest agricultural export in the year before the trade sanctions hit – and exports to China were soaring.

Last May, China suspended imports from Australia's largest cooperatively owned abattoir and three other major Queensland meatworks.

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Simon Stahl, a beef industry veteran and CEO of the Northern Co-operative Meat Company,  displays a diplomat's discretion when talking about China's actions.

"There has to be diplomacy between countries, of course, but I don't think it benefits anyone airing it out in public and having it out in the open debate," he says.

"I'm really focused on doing what I've got to do in here – in the boning room, in the load-out — to make sure that product, when it leaves here, is acceptable to markets all over the world, and that includes China."

Beef imports from the Northern Co-op were suspended by China for alleged labelling errors on some cartons of beef – the kind of technical breach that in the past has been resolved in a matter of months.

This time, nearly a year on, there's been no progress – and Chinese officials won't even pick up the phone.

"It is exceptionally frustrating," says the CEO of the Australian Meat Industry Council, Patrick Hutchinson.

The suspension cost the meatworks 10 per cent of its trade.

"Normally we have strong communication … and that has been non-existent and that's the concerning part for us as an industry because our dialogue is what makes us operate effectively in trade."

"If that dialogue's not there, then it's nigh on impossible to try and fix some of these things."

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The silence extends to the ministerial level.

Australian Trade Minister Dan Tehan wrote to his counterpart in China in January seeking a "dialogue" on the trade issues. He's yet to receive a reply.

Scott Waldron grew up on the land in beef country.

He is also an agricultural economist, China expert and University of Queensland research fellow.

"The trade barriers that China imposed on Australia in 2020 are cases of economic coercion," he says.

Australia's calls for an independent inquiry into the origins of the coronavirus outbreak last year are often cited as the catalyst for the all-out trade warfare.

The reality is the tensions are deep and longer standing.

"The intent is for China to change Australian policy, including on issues of the South China Sea, Hong Kong, Xinjiang, Huawei and foreign interference," Dr Waldron said.

Scott Waldron believes the trade sanctions flowed from demands by the Chinese Communist Party for retaliation for against any perceived threats to the interests of China.

"That so-called battle stance has become embedded within the party … including the Ministry of Commerce and the state administrations of customs and quarantine."

He says there is very little incentive for Chinese bureaucrats to come to an understanding with Australian trade officials.

"In fact, that could be harmful to your interests."

The Barossa Valley is Australia's premier wine-producing region, its bold reds renowned throughout the world.

No wine district has been hit harder than the Barossa after China imposed tariffs in late November last year.

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China accounted for more than 40 per cent of all Australia's wine exports — and 50 per cent of red wine exports – before the tariff hit. That's fallen to near zero.

Tony Battaglene, who heads the Australian Grape and Wine Association, says the 212 per cent tariff is having a "devastating impact".

"We've got to find a new home for $1.1 billion worth of wine."

Jason Zhao owns Orchid Wines, nestled in the hills above the Barossa township.

He moved to Adelaide from China 16 years ago to continue his studies in wine.

After graduating, Mr Zhao worked for two producers before setting up his own business, producing, bottling, and exporting wine.

He used his connections and knowledge to build exports to China, but dependence on that market left Orchid Wines dangerously exposed.

He has thousands of bottles in storage he now can't export.

"Our business has dropped down 95 per cent," he says.

"We only have 5 per cent for selling bulk wine to [the] UK market and the US market.

"That is not enough to sustain the business."

Across the Barossa region, there has been significant Chinese investment in the wine industry and one of the ironies is that China's trade sanctions have hit Chinese immigrants and nationals hard.

Mr Zhao's parents migrated to Australia to join their son and his family after they retired. He's drawing on their counsel as he tries to rebuild.

"My parents, they still encourage me, and say: 'It's not the end of the world. If you work hard, do the right things, one day, things will come back.'

"'Put your head down and work hard – just keep working.'"

Down the hill from Mr Zhao's vineyards is historic Château Tanunda, built in the 1890s.

The Château and the brand that bears its name are now in the hands of John Geber.

Château Tanunda had painstakingly built relationships in China over a dozen years before the tariff was imposed. It cost the business 15 per cent of its revenue.

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On display at the Château is a photo from happier times: the president of the United States, Barack Obama, having a glass of Château Tanunda's award-winning wine with Chinese President Xi Jinping at the G20 summit in Brisbane in 2014.

"It was a very proud moment," Mr Geber says.

Like a number of other companies, Château Tanunda cooperated with China's investigation and opened its books to Chinese officials, hoping to disprove China's allegation Australian wine was being dumped on the Chinese market at artificially low prices.

"It was forensic, far more difficult than a full due diligence if somebody was buying the company or we were buying another company," he said.

In response, Château Tanunda received a slightly reduced tariff– 160 per cent – but enough to kill its trade.

"You feel you've worked so hard and suddenly you've been king hit one afternoon. That's not the most enjoyable feeling," Mr Geber says.

"Again, it's a long game."

China recently announced that the tariffs on Australian wine would remain in place for five years.

Across the Barossa, producers are baffled at the accusation they have been dumping wine at artificially low prices.

Dr Waldron says the Chinese case against the Australian wine industry is "spurious".

"The price of Australian wine exported to China is higher than all other major countries.

"Higher than France, or Chile, or Spain, and many times higher than the price of Chinese domestic wine."

Australia intends to challenge the tariff at the World Trade Organization — but that could take years.

The salt lake country, about four hours south-east of Perth, is a harsh landscape and it may not look like a food bowl, but it's rich terrain for grain.

The region is known as the Wheatbelt, but in recent years, growers profited from a barley boom driven by surging demand from China, particularly for lucrative, premium-grade malt barley used in brewing.

The entire production process became geared to China.

The risk of that strategy was exposed in May last year when China imposed a tariff of more than 80 per cent on Australian barley, claiming it was being dumped at below cost onto the Chinese market.

Doug Smith heads the WA Grains Group and has worked the land here for 43 years.

"This was massive. This was the end of our exports to China," Mr Smith says.

The timing of the announcement made matters worse, it came after crops were already in the ground.

"Was it strategic? I would think so," he says.

"We were exporting around 6 million tonnes of barley to China, Australia-wide. Western Australia alone was exporting somewhere around three-and-a-half-million tonnes.

"So, we've forsaken all the other markets basically because it was all we could do to produce enough to satisfy the Chinese market."

Detailed information Australian exporters provided to refute the allegation grain was dumped in China at below cost was dismissed and ignored.

The good news is that barley has since found new markets and, in the face of the sanctions, the economy has proved remarkably resilient.

Ironically, the overall value of Australia's exports to China increased last year – largely because of its appetite for Australian iron ore.

If part of the aim of the trade sanctions was to provoke affected industries into lobbying the government to soften policies and appease China, the strategy has also largely failed.

"The way industry has engaged with me, those affected industries, has been really humbling," says Trade Minister Dan Tehan.

"Some of those industries are hurting quite significantly, but they understand that Australia's sovereignty is incredibly important. They've sought to put the national interest before their own self-interest."

Australia's resistance to the pressure – politically and economically – won't pay the bills for the many producers who have had their livelihoods dashed by China's punishment.

Yet rather than buckling to the economic pressure, the Australian government has doubled down.

Last week, it cancelled deals the Victorian government had made with China under its Belt and Road initiative on national security grounds, a move that may spark more trade reprisals.

In industries such as rock lobster fishing and wine making, businesses that relied heavily on sales to China will struggle to survive.

Despite the hardship, some of those hurting the most say Australia has no choice but to hold firm.

"Unfortunately," says Michael Blake, "for our democracy, for our way of life, for everything that we hold dear about Australia, I think Australia needs to stand up for itself."

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Taiwan Bans Companies From Hiring Employees in China as Tensions Rise .
The notice is an extreme measure by Taipei to stop a drain of tech workers from the island to China, and goes as far as to subject violators to fines. It also bars recruitment agencies and head hunters from helping hire workers for positions in mainland China and specifically takes measures against valuable jobs involving circuits and semiconductors, an industry where Taiwan leads. "If the recruitment involves semiconductors and integrated circuits, the penalty will be even higher," the notice said, according to Nikkei Asia.

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