What’s that old saying? Never start a war unless you know you can win.
Which brings us to the topic of China and its rapidly deteriorating relationship with Australia.
Much to the chagrin of Beijing’s bureaucracy, Australian trade is booming, causing a rapid turnaround from the COVID-inspired crisis that crippled the global economy last year.
And much of that good fortune is owed to China.
Figures that landed the other day showed a swelling trade surplus, reaching $ 8 billion in April alone, thanks to soaring prices for iron ore and coal.
The previous month’s surplus was revised to $ 5.8 billion.
After more than a year of escalating hostilities which have now degenerated into an open trade war, a quick tally would indicate that although we have suffered some casualties, much of the cost of the trade war is borne by the Middle Empire. .
Australia is doing relatively unscathed.
From a longer-term strategic perspective, the fury that has been directed at us from China could end up being a blessing in disguise.
Many of the hardest hit industries have been forced to seek out other markets, which will ultimately reduce our unhealthy reliance on one primary, and increasingly erratic, customer.
Friendly farewell, Filipino style
Diplomats, by definition, are usually not particularly direct.
So, it came as a shock last month when Philippine Foreign Minister Teddy Locsin Jr took to Twitter with a tirade against Beijing over its contested maritime claims.
“China, my friend, how can I say it politely?” Let me see… O… REMOVE THE F *** OUT. What do you do with our friendship? You. Not us. We are trying. like a naughty idiot, forcing your attention on a handsome guy. “
He went on at length with a follow-up tweet on China’s territorial ambitions.
A few days later, he apologized, apparently after being informed that only the president can pronounce curses.
The incident shed light on the tensions boiling in the region.
Beijing’s ruling elite is slashing Taiwan, strengthening control of Hong Kong, and engaging in border hostilities with India.
Last week, 16 Chinese military planes flew over Malaysian airspace, prompting the Royal Malaysian Air Force to scramble Hawk fighter jets to intercept them and force them back.
As our business leaders worry about the potential loss of revenue from an angry Middle Kingdom and continue to call for a “normalization” of the relationship, China’s stoush with Australia is very much in line. to its position towards most of its immediate neighbors.
Beijing is stepping up pressure on multiple fronts in the region, most notably in its ambitions over disputed territorial waters with overlapping claims from Brunei, Malaysia, the Philippines, Vietnam and Taiwan.
So it’s not just us.
Turn off the lights
Donald Trump has learned the hard way that no one wins a trade war. Not that he ever admitted it.
While the former US president’s tariffs certainly inflicted pain and hardship on China, the plan backfired dramatically.
An Oxford Economics study found that America lost 245,000 jobs during the stoush, while a Brookings Institute study estimated that it cut US stock prices by $ 1.7 trillion and between 0, 3% and 0.7% of GDP.
The Chinese authorities are now presiding over a similar episode.
Not only has its economy suffered, but the extreme measures also imposed on Australia have left Beijing strategically devoid of ammunition.
In January and February, Australian coal bans plunged much of China into darkness.
Power outages in Shanghai and southern China have been attributed to routine maintenance issues.
But thermal coal shortages across China have pushed up prices, especially as the recovery in the Chinese economy has increased its demand for energy.
Over the past week, power outages have been reported in southern China and electricity rationing has been imposed.
Last week, thermal coal prices hit three-year highs of around US $ 120 per tonne, well above US $ 48 per tonne last year. It was a major factor in our booming trade surplus.
We may not be landing a lot of coal in China. But as China scrambles to source energy elsewhere, the Australian product is filling the gaps.
This is what happens with trade. It’s a merry-go-round.
As for iron ore, prices have once again surpassed the US $ 200 per tonne mark despite an attempt a fortnight ago to lower prices, threatening legal action for anyone caught rigging the market.
We may be basking in it now. But it won’t last forever.
For a decade, China has kept its economy afloat with massive stimulus programs involving the construction of new cities and infrastructure.
For much of the past five years, he’s tried to wean himself off the craze for state-inspired building.
When this is the case, demand will moderate. And by that time, it may well have found new supplies in West Africa, which will limit the gold from red earth exports.
In the longer term, prices will fall and the importance of the industry will decrease.
In the meantime, however, we have an extraordinarily powerful asset.
China’s economic health and conventional military ambitions depend on a reliable supply of iron for steel, a fact that would not have gone unnoticed in Beijing.
An old story in new markets
China may have banned Australian barley, but not wheat.
Last December, as barley farmers reeling from the loss of the market, wheat farmers cashed in, sending nearly 800,000 tonnes to China.
Meanwhile, barley exports to Thailand and Vietnam are expected to double this year.
One can only guess how much of this then ends up in China, as enterprising entrepreneurs find ways around the bans.
Take the lobster trade for example. Hong Kong, which previously only bought meager amounts of our shellfish, suddenly gorges itself on Australian lobster like never before.
It is highly likely that the well-heeled members of Beijing’s ruling class simply found a way to put their favorite food back on the menu via something called “gray trade”, where a Hong Kong middleman buys from Australia and then exports. to China. .
Even one of our hardest hit industries, wine, seems to be getting out of trouble.
Treasury Wine Estates, the world’s largest publicly traded premium wine producer, was beaten by six by Beijing’s imposition of crippling tariffs last year, which essentially shut the market down to half of the country’s domestic exports. wine. The company’s stock price has fallen throughout 2020.
Three weeks ago, however, the Treasury announced a significantly improved earnings forecast, pushing up its stock prices, as it targeted new markets in Asia and sent more produce to Europe and the United States.
Profits are expected to rise 33 percent in the June half-year, compared to last year’s dismal performance. This helped raise the company’s share price by 17% in May alone.
Australian businesses are adapting, just as they did when the UK joined the European Union in 1973. The difference now is that we have a much more nimble economy with a floating currency that absorbs major shocks like global financial meltdowns, recessions inspired by pandemics and even trade wars.
Meanwhile, back at the Politburo, things look bleak.
No electricity, no lobster and no barn. How was this idea?