Australia’s exports to China are jumping despite their trade fight

BHP Billiton Ltd. Freight Train. Carrying iron ore traveling along a railway track towards Port Hedland, Australia.

Ian my father | Bloomberg | Getty Images

China is buying more goods from Australia this year even as their trade spat shows no signs of abating.

The value of Australia’s exports to China has jumped 24% from a year ago, to more than A$180 billion ($135 billion) as of the latest August data, according to research firm Oxford Economics.

Monthly data shows that goods to China hit a record monthly high of A$19.4 billion in July – a 72% increase from a year ago, according to Reuters.

Relations between the two countries deteriorated sharply last year after Australia backed a call for a global investigation into China’s handling of the initial COVID-19 outbreak.

Since then, those tensions have morphed into Chinese sanctions on Australian goods. This ranged from tariffs to bans and other restrictions – affecting Australian goods including barley, wine, beef, cotton and coal.

“Australia’s increasingly divided trade relationship with China has been a major downside risk to the outlook over the past year,” said Sean Langcic, chief economist at Oxford Economics. “Trade barriers have been imposed on some products from Australia and have steadily escalated as diplomatic tensions escalate.”

Through it all, the company said in an October 22 note that Australian exports to China “remained remarkably flat”.

Australia is one of the few developed countries that has a trade surplus with China, its largest trading partner.

Iron ore drives export growth

However, some products have bucked this trend in food exports. Lang Cake said meat and live animal products are still “steady” and heading to China despite the restrictions.

Commodities hardest hit include timber, seafood, beverages, edible oils, coal, textiles, footwear, grain and sugar, according to Oxford Economics.

Australian officials have criticized China for trade sanctions. In a statement to the World Trade Organization last weekAustralia said: “China says these measures reflect legitimate trade concerns; but there is a growing body of information showing that China’s actions are motivated by political considerations.”

The World Trade Organization said on Tuesday it had agreed to set up a panel to examine duties imposed by China on imported Australian wine, according to Reuters.

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Despite the sanctions, Australia has been able to divert its banned exports to other countries, according to Oxford Economics.

“The key question throughout this episode for exporters was their ability to switch to alternative export destinations if they faced barriers when exporting to China,” said Lang Keck. “Encouragingly, we found evidence of trade dispersal rather than a collapse in export performance.”

One example is coal, which has been in the spotlight as China’s restrictions on Australian coal remain in place, despite the country’s worst energy crisis in years due to shortages of the commodity.

Oxford Economics said coal exports from Australia to India – which is facing coal shortages – rose to Japan and South Korea.

CNBC’s Roy Chowdhury contributed to this report.

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