Australian Economy

Coalition boasts of tough line on China but documents reveal private fears on trade | Australian economy

The Coalition has ramped up its pre-election attack on Labor over national security, while new documents show how concerned the Australian government was about China’s widening trade bans as the diplomatic relationship soured.

At the height of the tensions, coal industry figures told the Australian government Beijing’s ban on supply from Australia was fuelling “elevated uncertainty”, especially because it was unclear how long the disruption would last.

Briefings to the treasurer, Josh Frydenberg, also warned that Beijing had “effectively eliminated Australian barley as a feasible option for Chinese importers” and that Australia’s wine industry had struggled to divert to other markets.

Guardian Australia obtained the briefings after a freedom of information battle with Treasury surrounding the economic impact of trade actions taken by Australia’s largest trading partner – an issue that is likely to feature in the looming election campaign.

The prime minister, Scott Morrison, told parliament on Wednesday that his government would “continue to stand up for Australia’s values in the face of threats and coercion” and “we’ll never have an each-way bet”.

The defence minister, Peter Dutton, followed up by saying any voters who were “worried” about China or Russia “wouldn’t vote for Labor at the next election” – despite the opposition offering broad bipartisan support on foreign affairs and national security issues.

The comments come after Labor accused the government of a “dangerous ploy” to pretend there are substantial differences between the main parties when it comes to China.

From 50m tonnes to nothing

Treasury initially blocked the public release of the advice it prepared for Frydenberg about the economic impact of the trade tensions, fearing the disclosure could cause damage to the diplomatic relationship and “prejudice future trade discussions involving China”.

But it later agreed to release 28 documents, produced between January and September 2021, after a successful request for an internal review of the FoI decision.

The documents provide an insight into what Frydenberg was told about China’s trade actions – which hit a range of sectors including barley, wine, coal, seafood, timber and red meat – and how he should respond to questions in parliament.

A 2021-22 budget issues brief to Frydenberg said: “While the ongoing trade restrictions with China have had significant impacts on specific firms and regions, most goods targeted by the restrictions have so far been successfully redirected to other export markets, though often at lower prices.”

It added: “Consultation with market and industry participants, however, has highlighted that there is elevated uncertainty in the coal market, in particular around the duration of the Chinese restrictions on Australian coal, as well as around global environmental policies.”

Coal stockpile at the port of Newcastle
Australia exported no thermal coal to China in 2021, compared with 35m tonnes in 2020 and 50m tonnes in 2019. Photograph: Darren Pateman/AAP

China’s informal ban on Australian coal came to a head in late 2020 when dozens of ships carrying Australian coal were left waiting at sea – some for months – to offload their cargo at Chinese ports.

Jo Clarke, an associate editor for Argus, a global commodity and energy publication, said the vast majority of ships that were waiting outside Chinese ports were diverted to alternate non-Chinese ports.

She said a few of the ships were allowed to discharge Australian coal on humanitarian grounds so that the crews could return home.

“All the coal that had been discharged has now been given customs clearance to be released from the ports, but no new Australian coal is being allowed into China,” Clarke said.

The latest figures suggest Australia exported no thermal coal to China in 2021, compared with 35m tonnes in 2020 and 50m tonnes in 2019. The shortfall was offset by increases in shipments to India, Japan and South Korea.

The resources minister, Keith Pitt, said Australia’s coal industry had “shown tremendous resilience”.

“Australia remains open to talks with China on resuming exports, including coal, that would be of mutual benefit to both countries,” Pitt said.

Frydenberg’s talking points

The budget issues brief to Frydenberg catalogued “a range of complex trade issues between Australia and China”. They included formal actions – such as tariffs, suspensions and increased testing of goods on arrival – along with informal measures such as quotas or unofficial instructions to Chinese buyers.

The document said Beijing’s 80% tariffs on Australian barley – announced in May 2020 and now subject to a World Trade Organization challenge – had “effectively eliminated Australian barley as a feasible option for Chinese importers, and exports to China effectively ceased after the tariff’s introduction”.

“Despite trade restrictions from Australian barley export volumes were up 176% through the year in March quarter 2021 … due to higher production resulting from favourable seasonal conditions in 2020.”

But the Australian wine industry – also hit by tariffs – found it more difficult to divert to other markets.

This transition “has been faster and lower-cost for barley exports than for wine”, according to a Treasury economic note in June 2021.

A briefing to prepare Frydenberg for an interview in May 2021 suggested he emphasise Australia’s “mutually beneficial trading relationship with China” if asked whether the government was concerned about the actions.

“We are concerned about trade disruption,” those talking points said, while adding that the impact of China’s actions on Australia’s overall economy “has been limited”.

That view was reflected in Frydenberg’s public statements about the Australian economy’s “resilience” in the face of sharp “pressure”.

The documents also show how Frydenberg was briefed for parliamentary question time throughout the course of last year, including to say the government had “sought assurances from China that trade will occur in a timely, transparent, non-discriminatory and predictable manner”.

A question time brief, prepared in January 2021, suggested to say the government was “deepening Australia’s economic partnerships with a range of countries” if asked what it was doing to mitigate the damage.

The question time brief also stated the Australian government “will always protect our national interests, first and foremost”.

Officials suggested Frydenberg note both Australia and China have “benefitted greatly from our trade relationship” and “without this, we both lose”.

A question time brief in August 2021 played down a story in Chinese state media that suggested Chinese steel exports to Australia had dropped “more than 50% in recent months” and that this would hurt Australia’s economy.

“This potential fall in steel exports reflects China’s broader policies to reduce emissions and curb steel prices – it is not targeted at Australia specifically,” the brief said.

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