Australia’s Cold War with China

Tensions are rising between China and Australia. In the past week, China triggered an anti-dumping investigation into Australian wine imports. The investigation may be followed by an inquiry into American wine exports to determine whether or not they were profiting from government subsidies. This appears to be an antagonistic response to Canberra’s inquiry into the origins of the COVID-19 pandemic, which focused on its beginnings in Wuhan. Amid growing fears of China’s political interference in Australian politics, condemnation of the recent Hong Kong Security law, and accusations of cyber-attacks; Australia’s resolution to ban Huawei from partaking in the introduction of 5G has intensified existing tensions. Both countries have initiated anti-dumping measures against one another, bringing an end to their positive relationship and with it, the end of zero import tariffs for Australian wine imports, which had been granted in January 2019. It is speculated that, due to these developments, Australia is more likely to undergo a larger economic blow.

From 18th August 2020 China’s Ministry of Commerce, at the request of the Chinese wine industry, will examine all imports from Australia measuring two litres or less. The investigation will determine whether Australian wine companies have intentionally “dumped” their wine into the Chinese market between 2015 and 2019 at lower prices to gain a larger market share, in turn preventing locally produced wines from competing. The Chinese industry body reports a drop in the market share of Chinese wine from 75% to under 50% within the space of the last five years, and holds Australian wine as accountable.

The investigation is scheduled to conclude by August 2021, leaving time for a detrimental impact for both China and Australia. For Australia, it could mean punitive tariffs on one of their most profitable export markets.  Between May 2019 and May 2020, almost half of Australia’s global wine exports, which amount to around $800m annually, were to China (Global Trade Atlas data published by Wine Australia). China’s importance to the Australian wine industry is exemplified by the 14% share drop of Treasury Wine Estates, Australia’s dominant wine exporting company, which demonstrates investors lack of confidence in the company without Chinese demand.

What does China seek to gain from these investigations? China’s foreign minister claims that China’s actions form a “normal anti-dumping investigation”. However, it may be a tit for tat retaliation to Australia’s own anti-dumping actions against a number of Chinese products including chemicals, glass, electric cables, and steel. Currently, Australia has taken more measures against China than it has against any other nation. Similarly, China has also imposed sanctions against Australian coal, beef, and barley.

Equally it could be a Chinese attempt to cause economic damage as a form of political message. Wine is not essential for Chinese economic growth; China can acquire its imports from elsewhere. But the sanctions have irritated Australia’s agricultural lobby and threaten unemployment for Australians who are part of the supply chain.

Australia has expressed its intention to cooperate with the investigation and prove its innocence. Having been hit by bushfires, drought, and COVID-19 in the past year, Australia is too vulnerable to continue fighting China. It may have got itself into a cold war which it has no capacity to fight.

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