China has banned Australian coal in a huge escalation of the trade war, state media reports

• China has lifted restrictions on coal from all nations except Australia in the latest attack on the country’s exports.
• The Global Times, a state media outlet, quoted an economic advisor who said that “the relationship between China and Australia has been deteriorating and Australia is gradually losing the Chinese market”.
• Trade Minister Simon Birmingham revealed the government is seeking clarification over the reports, telling media “I urge Chinese authorities to immediately rule out these reports of what, if accurate, would appear to be the use of discriminatory practices against Australian coal”.
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This article was originally published on Business Insider Australia by Jack Derwin.

The strained relationship between China and Australia has spiralled from an unfortunate tiff to a trade war Canberra can’t ignore.

On Monday evening, the Morrison government was seeking clarification over reports that China, the country’s largest trade partner, would cease buying Australian coal, while lifting import restrictions on other nations.

In a newspaper article with the headline “Australia shut out of new China coal policy”, state media outlet The Global Times reported that China had replaced Australia with other major exporters.

“China’s major coal import source countries used to be Australia, Indonesia, Russia and Mongolia. Since Mongolia has a geographic advantage that allows lower transportation costs than any other exporters, it could take a large share from Australian coal, as the relationship between China and Australia has been deteriorating and Australia is gradually losing the Chinese market,” Wang Yongzhong, director of the Institute of Energy Economy at the Chinese Academy of Social Sciences, is quoted as saying.

Citing China’s goal of being carbon-neutral by 2060, Wang goes on to say that “an absence of Australian coal in China is actually beneficial to all other market suppliers”.

Threatening a $14 billion a year industry, the ban comes after steel mills were told verbally to stop buying Australian coal in October.

China must rule out ‘discriminatory practices’

The Australian government said it was now seeking answers from Beijing.

“I urge Chinese authorities to immediately rule out these reports of what, if accurate, would appear to be the use of discriminatory practices against Australian coal,” Trade Minister Simon Birmingham told media on Monday.

“We reiterate that all terms of our free trade agreement and world trade obligations between Australia and China should be upheld and respected.”

The coal ban marks the biggest escalation in a trade war that now covers more than $20 billion worth of Australian exports, including barley, wine, lobster, timber and beef.

All have been subject to punitive restrictions and tariffs, after Australia threw its support behind an investigation into China’s early handling of the coronavirus outbreak.

While Canberra has been reluctant to acknowledge the reactionary nature of these measures, it has been left with few alternatives as China heaps economic pressure on seemingly without reprieve.

Australia has other options for now

However, while the major split with China over trade policy provides serious concerns, Australia has managed to so far find other markets to compensate due to higher demand in countries like India, Japan and South Korea.

“Stronger demand from these countries has helped to offset the negative impact of China’s ban on Australia’s coal sales. For instance, Australia’s exports to both Japan and South Korea were at their highest in October since prior to the global Covid-19 pandemic,” analysts from Fitch Solutions Country Risk and Industry Research wrote on Monday.

At the same time, October restrictions have created an oversupply of Australian coal that it can now export while other producers remain constrained and prices remain high.

With China, the world’s largest buyer of coal, to begin cutting consumption over the next decade however, Australia will need to begin transitioning away regardless of its trade relationships.

But in the short-term, its another economic hit Canberra would rather have liked to avoid, and a trade war it simply can’t ignore.

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