Australia’s economy may NEVER return to previous growth due to trade row with China.

When the China–Australia Free Trade Agreement (ChAFTA) came into effect in December 2015, officials in both countries were optimistic about the long-term prospects like mutually beneficial trade. In fact, Australia even described it as a historic agreement that will provide enormous benefits, including an increase in economic growth and the creation of new jobs.

However, ties between the two sides soured in 2018 when Australia publicly banned Huawei, a Chinese telecommunications equipment company, from participating in the rollout of 5G mobile infrastructure. Later that same year, China initiated an anti-dumping investigation into Australian barley imports out of accusations that barley was subsidized by the government. In 2020, relations worsened once again after Australia called for an investigation into the origin of the coronavirus, and China imposed a whopping 5-year, 80.5% tariff on Australian barley imports and halted beef imports from four of Australia’s largest meat processors. Since then, there have been different import restrictions on other commodities like coal, copper, timber, and sugar.

Unfortunately, because China is Australia’s largest trading partner and was responsible for 39.4% of goods exports and 17.6% of services exports between 2019 to 2020, the escalating trade row, along with the effects of COVID-19, have resulted in an economic downturn for Australia. Thus, it is highly likely that the Australian economy’s growth may “never return” to pre-COVID levels even when the pandemic is over. To make matters worse, Australia could contract even more if Beijing continues to pile tariffs on more Australian imports.

According to Marcel Thieliant, a senior economist at Capital Economics, “while Australia should be able to divert some shipments to other countries, the escalating trade war is another reason why Australia’s economy will never return to its pre-virus path even once the pandemic has been brought under control. Goods and services that are already ‘in the firing line’ are worth almost a quarter of Australia’s exports to China — forming 1.8% of its economic output. That figure could rise to around 2.8% of GDP if China targeted other products for which it isn’t hugely dependent on Australian imports.”

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