Revealed: The one crucial Australian export that could hurt China’s economy if they choose to play nasty – but Beijing is so furious it might just slap a huge tax on it anyway
- China sources 60 per cent of its iron ore from Australia for its steel production
- CMC Markets strategist Michael McCarthy said tariffs on commodity possible
- Hong Kong economist Tommy Wu said China would buy less iron ore in 2021
- This would occur as China cut back on steel needed for building infrastructure
Australia’s iron ore exports to China are still at risk with Beijing possibly devising a way of slapping nasty tariffs on this vital commodity used to make steel.
Australia’s biggest trading partner has imposed punitive 212 per cent tariffs on wine and 80 per cent import taxes on barley, and even blacklisted coal this week.
But China hasn’t targeted iron ore after buying $70billion of this commodity during the last financial year, making it by far Australia’s biggest export among the $150billion worth of goods and services sold to the Communist power.
Government tax revenue is healthy with the iron ore price this month climbing above $US150 ($A200) a metric tonne for the first time in seven years.
Iron ore exports to China are still at risk with Beijing possibly devising a way of slapping nasty tariffs on this vital Australian commodity used to make steel. CMC Markets chief market strategist Michael McCarthy said China could still impose hefty tariffs on Australian iron ore, even though it desperately needed the commodity. Pictured is a Pilbara mine
The China Iron and Steel Association has this week complained to mining companies about the high iron ore price.
Australia’s exports to China
Iron ore: $70billion
Liquefied natural gas: $20billion
Metallurgical and thermal coal: $18billion
Gold and base metals: $10billion
Source: A Westpac analysis of Australian Bureau of Statistics trade data for 2019-20
Even in this scenario, CMC Markets chief market strategist Michael McCarthy said China could still impose hefty tariffs on Australian iron ore, despite desperately needing the commodity.
‘It’s certainly a vital commodity for China but China’s shown in the past that it’s willing to put economic considerations to one side when it sees what it would term more important considerations,’ he told Daily Mail Australia.
‘It’s not impossible.
‘We’ve seen some furious reactions out of Beijing to things that seem like normal, day-to-day events, it’s hard to predict how things will evolve in this trade relationship.’
China sources 60 per cent of its iron ore from Australia, with possible alternative Brazil struggling to keep up production almost two years on from the Vale tailings dam collapse.
The Simandou mine at Guinea in west Africa, partly owned by Chinese aluminium giant Chinalco, is years away from being operational.
Former resources minister Matt Canavan, a Queensland Nationals senator, this week even suggested Australia could impose its own taxes on iron ore exported to China – a suggestion his successor in the portfolio Keith Pitt rejected.
Regardless of the trade war, Oxford Economics lead economist Tommy Wu, who is based in Hong Kong, said China was likely to buy less Australian iron ore next year as it scaled back on its transport infrastructure and apartment building projects.
‘Slower growth in infrastructure and real estate investment will lead to a reduced demand for building and construction materials such as steel, and this will weigh on Chinese demand for Australian iron ore next year,’ he told Daily Mail Australia.
China sources 60 per cent of its iron ore from Australia with Brazil struggling to keep up production almost two years on from the Vale tailings dam collapse. Pictured is an iron ore miner in Western Australia
Nonetheless, Mr Wu said China would draw the line at imposing import tariffs on Australian ore, as part of its trade intimidation campaign.
‘It is unlikely that China will impose restrictions on iron ore imports because it could have a profound impact on China’s infrastructure and real estate sectors which will remain key to China’s economy even if these sectors will likely experience a slowdown next year,’ he said.
Oxford Economics is forecasting China will switch its priorities to boosting consumption and away from building infrastructure and real estate.
Under President Xi Jinping, China in 2021 is embarking on its 14th five-year plan, which is focused on slower growth but more quality services.
In November, China’s annual growth in infrastructure investment eased to 6.1 per cent from 8.4 per cent in October.
During that time, year-on-year growth in real estate investment slowed to 10.9 per cent from 12.7 per cent.
Regardless of the trade war, Oxford Economics lead economist Tommy Wu, who is based in Hong Kong, said China was likely to buy less Australian iron ore next year as it scaled back on its transport infrastructure and real estate building. Pictured is a residential tower project in the Shandong province