Adelaide, Australia – As a seasoned wine seller from Australia’s renowned southern wine-making region, David Harris prides itself on one of his country’s best-known products.
“You don’t have to be a genius to know high-quality wine. “It has to jump out of the glass,” he said. “We got the fundamentals right and we did it for a good price.”
One of the countries that has drunk greater amounts of Australian wine in recent years is China.
“They’ve got us drunk outside and at home. We got the highest price we ever got thanks to China, ”Harris, CEO of the South Australian Wine Group, a wine trading and services company, told Al Jazeera.
But the party might end soon.
The widening political rift between Canberra and Beijing extends to trade relations between the two, threatening corporate profits and livelihoods in some of Australia’s most important export industries.
Australian analysts and exporters suspect that China retaliated after Canberra’s actions and statements against Beijing, particularly regarding the latest generation of 5G mobile phone networks and the coronavirus. China hasn’t officially said it will, but the recent moves speak for themselves.
In May, China hit Australian barley with import duties, accusing it of selling its products below cost to gain market share, a process known as dumping, and stopping beef imports from some of Australia’s biggest meat processors.
Earlier this month, Australian lobster came to life awaiting customs clearance in Shanghai. China has suspended some imports of Australian timber, reportedly due to concerns about pests.
Australian copper and sugar exports to China could also be targeted, according to state media.
And in August, the Chinese Alcoholic Drinks Association (CADA) called for retrospective tariffs on Australian wine imports, as part of a dumping investigation, according to Australian winemaker Treasury Wine Estates.
China has become important to the Australian wine industry. In the last financial year, China import $ 850 million (1.17 billion Australian dollars) of Australian wine – 39 percent of the total value of Australian wine exports.
Indeed, China is by far Australia’s largest and most important trading partner. About a third of Australia’s total exports are now destined for the Chinese coast, the market was worth an estimated $ 111 billion (Australian $ 153 billion) in the 2018-2019 financial year. This success in China was partly facilitated by the Free Trade Agreement (ChAFTA) signed in 2015, which deepened trade dependence.
Beijing has denied imposing a speculated embargo, which would flout World Trade Organization and ChAFTA rules. However, on November 4, the spokesperson for the country, Global Times, referenced to “import suspensions,” which further complicate Chinese messaging and create uncertainty.
And on November 12, Wang Wenbin, a spokesman for the Chinese Ministry of Foreign Affairs told reporters, “The causes for the current difficulties in our bilateral relations are very clear… For some time, Australia has violated the basic norms governing international relations, and made up words and misconduct on issues that concern China’s core interests, including those related to Hong Kong, Xinjiang, and Taiwan, and overtly meddling in China’s internal affairs. “
We got the highest price we ever had thanks to China.
Beijing-Canberra relations soured in 2018 when Australia became the first country to bar Chinese telecommunications giant Huawei from launching its 5G mobile phone network.
Relations have deteriorated further after Australia led calls for an investigation into the origins of the coronavirus pandemic, which started in the Chinese city of Wuhan. In another move likely to stir tensions, for the first time since 2007, Australia joined the US, Japan and India for the Malabar naval exercise.
China’s growing economic and military power have raised questions about its commitment to an international rules-based order and sparked a more hawkish reaction from Australia and its allies.
Professor Steve Tsang, director of the SOAS China Institute at the University of London, said Australia’s ability to direct its trade interests with China was being tested by its loyalty to Washington’s longtime security ally.
“Australia is definitely caught between the pulling forces of the US-China separation,” said Professor Tsang, “Australia will assess what is in its best national interest and which international partners it can rely on, and between China and the US, it is clear which Australia feels more comfortable. . “
Any embargo on Australian exports to China could be catastrophic. According to Jeffrey Wilson, research director of the Perth USAsia Center at the University of Western Australia, the seven products that have been targeted employ hundreds of thousands and together represent an estimated $ 15.9 billion (Australian dollar 21.9 billion) in exports to China.
That translates to 14.3 percent of Australia’s total exports to China in the 2018-2019 financial year.
Wilson said China’s intention appeared to be spreading disinformation in a bid to destabilize Australian export markets and hit Australia where it was at a disadvantage.
“This is a psychological war more than a trade war,” he said, “China has a long history of using trade sanctions of this kind as a diplomatic weapon, and is doing so to ‘set an example’ Australia for various foreign policy actions the Australian Government has taken in recent years. . “
He said Beijing was targeting industries that rely heavily on China as a destination, or products Beijing could easily buy from elsewhere, which is why China has not implemented any punitive measures on iron ore imports.
“The steel industry is structurally dependent on Australian supplies for normal operations, and China’s entire industrial ecosystem is dependent on its steel industry. To sanction iron ore would be a ‘mutually guaranteed destruction’, ”said Wilson.
An anti-dumping investigation by CADA, expected to be completed in one year, has uncovered three major Australian wine businesses: Treasury Wine Estates, owners of brands including Penfolds; Yellow Tail owner Casella Wines; and Australian Swan Vintage.
“Australian winemakers are fully cooperating. We don’t believe there is any evidence to support dumping, ”said Tony Battaglene, chief executive of the Australian Wine and Wine industry group.
Treasury Wine Estates shares slumped to a five-year low on November 5 on concerns that China will impose retrospective rates.
Battaglene said, “The duties, if assessed, will apply to all Australian wine exporters”.
For winemaker David Harris, the potential for tariffs will go a long way, “It’s about 50 percent of what we do. It will be a very big disaster but we will not be broke; there is a large growth market in India and Southeast Asia ”.
Eric Yang, CEO of Adelaide-based Pacific Vintners, also considered his options, “Of course, tariffs worry me, especially because we are oriented and focused on the Chinese market. In a sense this is a political issue, but it shows that we cannot rely on one market. It’s time to slow down, strategize and plan alternatives. “
This is a psychological war more than a trade war.
Another problem that can irritate Australian winemakers is that consumers in China can now choose to drink fine wine from other countries.
In Beijing, longtime resident Claudia Masueger is the founder of Cheers, a retail wine chain with more than 100 outlets in major cities in China. About a quarter of the wines on offer come from below.
The Swiss entrepreneur said that if tariffs were imposed on Australian brands, his customers might turn to Chilean or Argentinian wine as an alternative.
“It is difficult to predict the outcome of the tariff but it will be sad to see the tax on Australian wine increase. Fortunately, we represent all the major wine producing regions, therefore, we will not face many problems as a business, “Masueger told Al Jazeera.
But beneath a layer of optimism, those whose livelihoods are at stake fear Australia may follow the same path as the United States, locked in a bitter trade war with China.
Trade expert Jeffrey Wilson said Australia’s situation may improve when US President-elect Joe Biden takes on his new role.
“While Trump will be willing to let Australia suffer and ignore it, the Biden administration will see the sanctions as a grave breach of international trade law, as well as a direct economic attack on one of its most important regional allies,” Wilson said.
“By raising the political costs of this action, the Biden administration will likely see China more cautious about imposing sanctions like this in the future,” he added.