“Caught in the crossfire”: Aussie SMEs in the middle of China trade tension

Trade tensions are accelerating between Australia and China, following reports by Chinese media that select Australian imports could be suspended from entering China as soon as Friday, which would be a blow to small businesses caught in the crossfire.

China has asked traders to stop buying seven categories of Australian products, including coal, sugar, wine, lobsters, timber and copper goods, according to China’s English-language Global Times.

The report follows delays on lobster shipments clearing Chinese customs this week, an investigation into the cost of Australian wine exports, and an 80.5% tariff on Australian barley exports in July.

IBISWorld senior industry analyst Will Chapman says the potential bans show China’s aim to gain favourable trading conditions from Australia.

“These potential bans indicate China’s desire to use its position as a major market for Australian goods as leverage in negotiating the trade relationship,” Chapman tells SmartCompany.

“Nevertheless, the restrictions pose significant challenges for Australian businesses caught in the crossfire,” he says.

According to Chapman, the significant uncertainty unleashed by China’s strategy will reverberate through to SMEs not directly affected by the trade suspensions.

“SMEs down the supply chain will need to take action to mitigate the disruption of normal trade flows,” Chapman says.

“Firms that trade in products targeted by China will likely be affected by price volatility as alternative buyers are found.”

Scale of the impact

China’s proposed ban on Aussie wheat imports would hit home for the grain industry, since China accounted for nearly 15% of Australian wheat exports in 2019-20 — with a value of $568.4 million, according to IBISWorld data.

Bans on rock lobsters would also take a swipe at the fishing industry, with rock lobsters accounting for over 40% of the industry’s revenue, which expects to reach $1.7 billion this financial year.

China alone makes up 60% of rock lobster exports.

Potential bans on Australian coal, copper ore and copper concentrates are a new frontier in the tense trading ties between China and Australia.

A ban on coal imports would have the biggest economic impact of all, as China imported $14.2 billion worth of Australian coal in 2019-20.

“The proposed import ban on Australian coal represents a significant escalation in tensions, as China is the primary market for a range of lucrative Australian commodities, including iron ore,” Chapman says.

China has been careful not to make the import bans look like another politically motivated trade war, by giving various reasons to legitimise its import bans, such as biohazards in timber and wine prices fixed below cost.

Australian Trade Minister Simon Birmingham denied the timing of the trade issues had any link to the US election.

“I think it is important that people not jump to conclusions in relation to the seafood trade,” Birmingham said in a statement on Monday.

“We need to try to work through those issues, but by jumping to conclusions quickly and trying to draw linkages to other matters would only be unhelpful for our seafood industry,” he said.