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  • Writer's pictureCrest Economics

Recovering Trade with China- June 2024

Australia’s trade with China has soared to unprecedented levels in 2023, achieving a record A$219bn (US$145bn) following the removal of protectionist policies such as tariffs. This milestone highlights the resilience and significance of their economic ties despite damaging dispute sparked by the COVID-19 pandemic. The surge in trade, particularly driven by the rising prices of iron ore and the recovery of the tourism sector, underscores the interdependence of the two nations’ economies.

The diplomatic rift between Australia and China began in 2020, when Beijing imposed tariffs, sanctions, and informal bans on approximately A$20bn of Australian goods, including coal, barley, and wine. This move was a response to then-Prime Minister Scott Morrison’s call for an inquiry into the origins of COVID-19 and Australia’s decision to ban Chinese companies like Huawei from its 5G network. These measures significantly strained relations, and hindered Australia’s economic growth.

However, the election of Anthony Albanese in 2022 served as a turning point. The new administration sought to mend fences with Beijing, leading to a gradual lifting of tariffs and a resurgence in trade. Chinese Premier Li Qiang’s recent visit to Australia, the first by a senior Chinese leader since 2017, symbolises the renewed efforts to restore and expand this crucial economic partnership. Premier Li’s itinerary, which included visits to Australia’s mining and winemaking regions, highlights the strategic importance of these sectors. Iron ore remains Australia’s most critical export to China, with its prices having rebounded strongly post-pandemic. Additionally, the resumption of Australian wine exports to China, with A$86m worth of wine shipped in April alone, indicates a promising recovery. The visit also emphasised the growing significance of critical minerals like lithium, essential for electric vehicle batteries and other high-tech industries. Premier Li’s stop at a Chinese-controlled lithium processing plant in Australia signals Beijing’s keen interest in securing these resources. This interest is mutual, as Australia acknowledges the necessity of cooperating with China to maintain its economic resilience.

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