China has imported US$30 million worth of Australian copper concentrate and increased purchases of cotton from the country amid international sanctions over Xinjiang, despite unofficially banning the products in November last year, Chinese trade data shows.
Chinese importers also snapped up the lion’s share of Australia’s bumper wheat harvest for the 2021-22 season, making it the country’s largest buyer just as global supplies fall.
Global shortages and political tensions have forced China to turn to Australian products, especially as its economy has bounced back from the coronavirus pandemic, although there are few signs the trend will be permanent.
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Despite taking punitive trade action against Australia over several issues, including Canberra’s push for an independent investigation into the origins of the coronavirus, China will avoid shooting itself in the foot economically, said Stephen Olson, a former trade negotiator with the United States Trade Representative.
Any punitive actions will be carefully calculated to maximise pain on Australia and minimise disruptions in China
China will demonstrate pragmatism when it comes to balancing its economic prospects with its political interests, he said.
“Any punitive actions will be carefully calculated to maximise pain on Australia and minimise disruptions in China,” said Olson, who is also a senior research fellow at the Hinrich Foundation. “Given the high levels of trade and investment between China and Australia, this will not always be easy to do.
“And the exact composition of the package of punitive actions will occasionally need to be reassessed and potentially adjusted to reflect evolving commercial and economic realities.”
In June, official trade data shows that China bought 11,000 tonnes of copper concentrate from Australia for the first time since November, when Beijing unofficially banned traders from importing a number of Australian goods as tensions escalated between the two countries.
As China’s post-pandemic economic recovery ramped up, it stepped up copper imports, particularly from key exporters in South America, but did not buy from Australia until supplies in Chile and Peru were hit by market changes and political risks, respectively, in the middle of the year.
“Interestingly, this year China bought its first copper concentrate cargo from Australia in June after a gap of six months … [although] it might be too early to anticipate Australian copper concentrate shipments to resume into China as again there were no copper concentrate shipments arriving in July 2021,” said Pranay Shukla, associate director at market intelligence firm IHS Markit, while pointing out the 11-tonne cargo load was much lower than China’s pre-ban monthly imports from Australia.
It is likely China’s purchase of copper ore and concentrate will slacken given the nation’s foreshadowed economic slowdown, indicating purchases from Australia may not be repeated, Shukla said.
There was also a spike in cotton imports from Australia in April, which experts and analysts attributed not just to global supply constraints, but potentially US and European Union sanctions on Xinjiang cotton.
Following the ban on Australian cotton, imports fell from about 14,000 tonnes in November last year to near zero until April, when China bought about 10,000 tonnes of cotton.
China’s imports have fallen since April, but remained higher than the post-ban period of November 2020 and April, hovering between 2000-3000 tonnes a month.
Before the conflict escalated, China had bought anywhere up to 80,000 tonnes of cotton from Australia per month.
In April, a global cotton supply crunch had set in amid higher global demand for apparel and tighter cotton supplies from major exporters, the US and Brazil.
“Strong demand together with supply concerns is expected to have prompted purchases from Australia in an attempt to secure supply while available and keep cotton manufacturers operating, and also potentially secure stocks ahead of anticipated price rises on the back of the supply concerns,” RaboResearch senior commodities analyst Cheryl Kalisch Gordon said.
Crucially, the purchase coincided with US and the European bans on cotton products from Xinjiang, which led to many Chinese apparel and textile manufacturers buying up foreign cotton to accommodate some of the largest apparel retailers they serve, said Miran Ali, a spokesman for textile producer association Sustainable Textile of the East Asian Region.
“They cannot use Xinjiang cotton for the US market or for any European brand that also sells in the US,” Ali said.
“Therefore not only can they not use this for [say] Walmart, they can’t for [British apparel giant] Marks & Spencer’s either.”
China, like the US, often weaponises trade in order to achieve political objectives. Sometimes it works, but sometimes it does not
Not only does this show China’s pragmatism towards trade, but that countries which have weaponised trade cannot always “win”, said Tianlei Huang, research fellow at the Peterson Institute for International Economics.
“China, like the US, often weaponises trade in order to achieve political objectives. Sometimes it works, but sometimes it does not. In the Australia case, it seems China’s sanctions have yet to yield any real satisfactory results,” he said.
“Will China learn its lessons? Probably not. China’s behaviour mirrors that of the US. As China continues to grow and trade with the rest of the world, Beijing will most likely keep trade sanctions as a geoeconomic instrument in its foreign policy toolbox, despite potential economic costs inflicted to itself.”
Trade wars are costly to fight and the US-China trade war is a good example of a “lose-lose” situation for both nations, he added.
Earlier this week, the US Trade Representative Katherine Tai started the process of exempting some Chinese goods from Trump-era tariffs, saying the phase-one trade deal did not meaningfully address the fundamental concerns Washington had with China’s trade practices and their harmful impacts on the US economy.
Despite its damage, trade wars will remain a feature of geopolitical playbooks especially if countries cannot get issues resolved through official resolution mechanisms, Olson said.
“When there are highly damaging predatory practices which have defied resolution through other channels and threaten even worse long-term consequences, policymakers sometime conclude that a trade war is the lesser evil,” he said.
“Today, we are seeing an increase in punitive trade actions taken for geopolitical rather than economic reasons.”
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