Chinese wine importer Song Tian knows the cost of a trade war firsthand.
The Tianjing-based businessman, who used to sell 20,000 bottles of Australian wine a year to Chinese customers, had to quit importing from Australia altogether as the trade relationship between Beijing and Canberra soured.
In late 2020, China imposed so-called “anti-dumping” tariffs of up to 218 per cent on Australian wine, killing a market worth a billion dollars a year.
“It was too high, many other importers stopped buying Australian wines too,” he told the ABC.
“And they became too expensive for Chinese consumers.”
Mr Tian said the damaging tariffs forced many wine importers like him to look elsewhere for business, seeking alternative wine suppliers such as Chile and the US.
Economic damage goes both ways
Australian grape farmers and winemakers have also felt the pinch from the escalating trade tensions.
According to the data from Wine Australia, China was a $1.2 billion market for Australian wine in 2020.
However, the market value fell to just $24.2 million in March this year, plummeting 98 per cent from its peak.
Last year, the Australian government took the trade dispute with China to the World Trade Organisation (WTO) and an independent panel has been appointed to try to resolve the issue.
Lee McLean from Australian Grape and Wine, the peak body of the wine industry, told the ABC that the tariffs imposed by China on Australian wine effectively made the market “unviable”.
“This has created a very significant imbalance in supply and demand for both wine and wine grapes, leading to sharp falls in grape prices in some parts of the country and an oversupply of wine on the market,” he said.
Other commodities — including barley, beef, timber, cotton, lobsters and coal — were also hit by crushing tariffs or trade restrictions.
However, Beijing’s policy to hurt Australia backfired in areas that were reliant on imports from Down Under.
The unofficial ban on Australian coal exacerbated blackouts in 18 Chinese provinces last year due to a power crunch stemming from a coal shortage.
China later reportedly moved to release some Australian coal from bonded storage during the ban to ease the shortages.
Tim Harcourt is the chief economist from the Institute for Public Policy and Governance at UTS and the former chief economist at Austrade.
He told the ABC the trade war was hurting both sides, and small to medium business owners and consumers were bearing the brunt.
“I think it has really hurt China,” Professor Harcourt said.
“The average Chinese business owners and consumers have a good view of Australian quality and Australia’s professional reputation. I think they have been quite hurt by the trade spat.
“And for local Australian exporters, I think the larger companies can deal with it, but for small-medium enterprises, there are 10,000 of them, they have survived but it has been pretty hard.”
Why did China put tariffs on Australia?
Under the former Coalition government — which banned Chinese tech giant Huawei from the 5G mobile rollout, pressed hard on China’s human right abuse in Xinjiang and Hong Kong, and called for an independent inquiry into the origins of COVID-19 — the bilateral relationship was thrown into a deep freeze.
China cut off contact with Australian ministers and slapped tariffs and restrictions on around $20 billion worth of Australian exports.
The Chinese government also took aim at the international education sector last year, advising Chinese students not to study at an Australian university during the trade row.
Kirk Yan runs an education agency in both China and Australia, mostly recruiting Chinese students for Australian universities.
He told the ABC he lost clients because of the trade spat and negative media coverage of the political tensions in both countries.
“But they missed out on a really good study destination, and they would have to pay more tuition fees and expenses.”
International education is one of Australia’s largest exports and China is the top source country for students.
But many Chinese students were opting for other countries instead of Australia during the pandemic, which was also due to Australia’s harsh border restrictions.
Veteran Chinese Australian businessman Richard Yuan is another who has become collateral damage of the trade war.
He said his immigration business, which has helped many affluent Chinese to invest in and emigrate to Australia, was down up to 90 per cent impacted by the trade spat and the COVID-19 pandemic.
‘Cautiously optimistic’ about a new government
The end of nine years of Coalition rule has sparked new hope for a relationship reset, as Chinese Premier Li Keqiang sent a congratulatory message to new Prime Minister Anthony Albanese, breaking a two-and-a-half-year diplomatic freeze.
Premier Li said last week that “the Chinese side is ready to work with the Australian side to review the past, look into the future”.
He also referenced in his message that diplomatic ties with Australia were established during the 1970s when former Labor prime minister Gough Whitlam was in power.
The gesture has been welcomed by some export industries.
“We hope that it signals a willingness to engage in dialogue between our two countries at the political level,” Mr McLean from Australian Grape and Wine said.
Mr McLean said although he does not expect an immediate re-opening of the Chinese market he hopes this would be a first step for a political reset.
Patrick Hutchinson, CEO of the Australian Meat Industry Council, told the ABC that any opportunities to reset the bilateral relationship and reinstate a dialogue with China are welcomed.
“As always, we respect the sovereignty of China to apply individual sanctions if they feel these are necessary,” Mr Hutchinson said.
For Chinese business owners like Mr Tian and Mr Yan, the recent change of the Australian government is a “positive news” but both said they remain “cautiously optimistic”.
“We had a pretty good relationship with Australia when Kevin Rudd was the prime minister… however, it is still too early for us to tell whether the Labor Party will have an effect on us or not,” Mr Tian said.
Mr Yuan said the positive perception of the new government has already translated into a spike in business enquiries in the past week.
“The current trade relationship with China may be at a historical low point, except iron ore, the newly elected Labor government does provide some real hope,” he said.
Treasurer Jim Chalmers previously told the ABC that it would be “a great start” for China to lift the current tariffs and sanctions as they are “damaging” Australia’s economy.
How to repair trade relations?
Over the past few years, Australian export industries have been making efforts to diversify to minimise supply chain disruptions and offset the shortfall from China.
While some sectors like coal and barley held up relatively well, thanks to a pick up in alternative markets, others like lobsters and wine were less resilient to the economic coercion from Beijing.
“This will require a sustained effort to promote our wines and communicate our story in key markets, both traditional and emerging, and hard work to break down market access barriers in collaboration with the Australian government.”
Professor Harcourt said, although market diversification was more effective than he expected in the short term, it would be strategic to improve the relationship with China in the long term.
“It is always important to have a diversification of trading partners, but China has to be part of Australia’s story going into the future.”
Mr Harcourt said “the big opportunity for China and Australia is climate innovation”, given Australia’s policy shift in climate change and renewables and China’s ambition on reducing carbon emissions.
Prime Minister Anthony Albanese said he wanted to transition Australia into a “renewable energy superpower” and the new government has committed to net zero emissions by 2050 and a 2030 emission reduction target of 43 per cent.
Professor Harcourt also pointed out that it is a delicate task for the Albanese Government to engage with China with respect while also defending national sovereignty and democratic values.
“One thing that is positive is that Albanese won’t use a megaphone every Tuesday, using harsh rhetoric against China that was done by Scott Morrison and Peter Dutton,” he said.
“It wasn’t very effective. It didn’t help the relationship with China and for many Chinese Australians.
“I think having our first foreign minister of partially Chinese descent, Penny Wong, is also an asset because it just shows the modern face of Australia, and I think China will recognise that.”