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  • Writer's pictureCrest Economics

Australia faces headwinds from frosty relationship with China- April 2021

As the cold front from Antarctica brings about a drop in temperature, Australia prepares for an even icy Autumn from its relationship with China. From being the first country to ban Huawei’s 5G rollout and engaging in world-leading foreign interference legislation, Australia has set a new global precedent in tearing up Victoria’s Belt and Road agreement, marking the most recent development in the strained Australia-China diplomatic tension.

For China, the BRI is a multi-trillion dollar investment in which Beijing solidates its influence throughout the world. A global project that aims to connect trade, transport, infrastructure and digital network and establish China as the forefront of the global economy. Premier Daniel Andrews signed the BRI agreement in October last year, intending to collaborate with China state-owned companies to build a pipeline of multibillion-dollar infrastructure projects; allowing Victoria to become ‘China’s gateway to Australia’.

Consequently, Australia may face additional trade strikes as China hits Australian winemakers with new tariffs of levies ranging from 116 to 218% on top of the existing export restrictions on barley, beef, coal, lobster and forestry products. These industries covering almost $20 billion in trade are likely to see significantly smaller returns in the future. The education sector, as one of Australia’s strongest driver of export revenue, is hampered by local Chinese authorities discouraging students from studying in Australia. In 2019, Australian universities collectively received $10 billion in foreign student enrolments, with China comprising of 37% of enrolments. Iron ore exports have also entered the firing line with demand from China easing and inventories reaching full capacity.

Australia has once again become a global precedent in halting the advances of China and it is likely that our exporters will pay the price.

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