China has weaponised Australian wine, Norwegian salmon and Canadian canola

Sascha: [00:00:02] From Equity Mates media. This is the dive. I'm your host, Sascha Kelly.

Audio clip: [00:00:06] It's our biggest overseas wine market, almost 40% of exports. 

Sascha: [00:00:11] Australian wine sales to China dropped 98% in two years. Yes, you heard that right. 98% at one. 

Audio clip: [00:00:19] Time. Chinese wine importers bought up to $1.26 billion worth of wine each year from Australian vineyards. 

Sascha: [00:00:26] In the 2020 financial year. Australia sold $1.1 billion worth of wine to the world's most populous country in the financial year. Just gone. It sold just 25 million. And no, it's not because of the quality of Australian wine. I personally can vouch for its ongoing quality. Instead, this is a story about China. Call it economic coercion. Call it weaponization of trade, or just call it buying from friendly markets. This story is becoming more frequent. Australian wine. Canadian canola. Norwegian salmon. Filipino bananas. Lithuanian everything. There are stories like this popping up all over the world. It's Wednesday, the 3rd of August. And today I want to know how is China using trade as an economic tool? And how did Australian wine get caught up in it? To do this, I'm joined by my colleague here at Equity Mates. It's Alec Renehan. Alec, welcome.

Alec: [00:01:22] Hi, Sascha. Hopefully Equity Mates podcasts won't get added to your list, but I'm excited for this episode. It's a rare podcast where one episode you can talk about the lottery and the next you can talk about Chinese trade policy. 

Sascha: [00:01:34] And wine while you're at it as well. I'm just disappointed it's the morning and we can enjoy a glass of vino while we record. In my introduction, I mentioned a few different countries, all on different continents that all faced the economic consequences of crossing China. Let's unpack a few of these to get a sense of how this story is being played out globally. Let's start with Australia. Wine exports, as I said, dropped from 1.1 billion a year to just 25 million. I can't get over those numbers. What happened? 

Alec: [00:02:07] Yeah, it's a devastating drop. 

Audio clip: [00:02:09] Mitchell Taylor's winery has been selling Australian wine since the 1960s. 

Alec: [00:02:14] This is some of the stock that we've got for the Chinese market. 

Audio clip: [00:02:17] And in the past five years, China has been his main focus. 

Alec: [00:02:21] Before 2020, Australian winemakers saw China as a huge opportunity. Between 2020 20, exports grew from just $14 million to over a billion. That's an average growth rate of 25% a year. It was an incredible opportunity for Australian winemakers. In 2018, after sales to China had just grown 29% in the previous 12 months. Wine Australia released a report calling opportunities in China, quote, exciting and plentiful. Times were good. 

Sascha: [00:02:55] Yeah, it's hindsight's 2020, right. 

Alec: [00:02:58] To give you an idea of just how important China was. Australia exports about 60% of its wine production and at its peak China accounted for about 40% of those exports. So quick maths. 40% of 60%. China was consuming 24% of all wine produced in Australia. 

Sascha: [00:03:18] So those were the good times. But then in 2020, as we're all aware, everything changed. 

Alec: [00:03:24] That's right. China accused Australia of dumping wine, but. 

Audio clip: [00:03:28] These bottles can now be three times as expensive because China has imposed new tariffs of up to 212% on Australian wine.

Alec: [00:03:36] Beijing claims Australia is dumping wine, selling it cheaper in China than in Australia, undercutting Chinese producers. Australian exporters were hit with 175% tariffs in November 2020. And this basically made selling in China unviable. No Chinese customer was going to buy an Australian wine that was more than double the price of their competitor from other parts of the world. 

Audio clip: [00:04:00] Australia's wine exports to China have plummeted by 98% in just two months after crushing new import taxes were introduced. Red wine exports have taken the biggest hit.

Alec: [00:04:11] Exports dropped from 1.1 billion, as you've been saying, to about 600 million and then down to 25 million. Wine Australia had a physical office in China. It announced it was closing that earlier this year. Australian wine has lost its foothold in China, lost its foothold. 

Sascha: [00:04:28] That's a bit of an understatement there. These tariffs as well, they weren't arbitrary. This was part of a series of escalating tensions between China's leadership and Australia's Prime Minister at the time. Scott Morrison Yeah, that's right. 

Alec: [00:04:40] Tensions were rising for a while, but they really came to a head over COVID. 

Audio clip: [00:04:44] Australian Prime Minister Scott Morrison has taken a hard stance on this matter. He says that Australia will continue to push for an enquiry into the origins of the Corona virus, even if it hurts trade relations with China. 

Alec: [00:04:56] Australia's Prime Minister at the time, Scott Morrison, was quite out. Spoken on the need to investigate the origins of COVID. This came amidst conversations around China's handling of COVID and the possibility that the virus was a lab leak rather than animal to human transmission. China obviously did not appreciate this, and they retaliated economically. China's foreign ministry came out and said Australia would not be able to, quote, reap benefits from doing business in China. While, quote, groundless, accusing and smearing China. So they imposed 175% tariff.

Sascha: [00:05:33] And I want to ask because I feel like I'm missing something here. This is a legal right, like the World Trade Organisation has rules against using trade policy to punish or coerce other nations. 

Alec: [00:05:44] That's right, they do. And Australia has taken their case to the World Trade Organisation alongside some of the other countries we'll talk about today. But there's only so much any international organisation can do and today they haven't done much. 

Audio clip: [00:05:58] Since May, Australia has been caught in a trade dispute with China. It has hit not just the wine industry but also coal, barley, lobster and beef. 

Alec: [00:06:07] Alongside these wine tariffs. Australian exporters of barley, timber, lobster, cotton and coal have all faced sanctions, tariffs, import suspensions or long customs delays from China.

Sascha: [00:06:20] Okay, so that's one example of China using trade policy to settle political disagreements. Another notable one of the last few years involves Canada, a jailed telecom executive and canola oil. Three things I never thought I'd say in the same sentence. Where do we start with this one? 

Alec: [00:06:38] So in 2018, Canada arrested a top Huawei Technologies executive. Meng Wanzhou, the daughter of Huawei's founder, was arrested at the Vancouver airport on charges of bank fraud relating to American sanctions against Iran. In response, China detained two Canadians, widely saying in the international community as hostage diplomacy. But China also applied a slew of economic measures, including revoking permits for Canadian companies to export canola to the world's second biggest economy. Now, Sascha. Canada is the world's largest producer of canola and 90% of that canola is exported. Before the ban, the Chinese market made up 40% of Canada's canola exports. So quick maths again 40% of 90% meant 36% of all the Canadian canola. Say that five times quickly. 

Sascha: [00:07:35] I'm not going to do that. 

Alec: [00:07:38] About 36% of all the Canadian canola produced was going to China, according to the Canola Council of Canada. Seed exports to China fell from $2.8 billion in 2018 to $800 million in 2019. 

Sascha: [00:07:55] Okay, so that's a 70% drop in exports in one year. And much like Australia, Canada protested to the World Trade Organisation, accusing Beijing of deploying, quote, economic coercive measures in response to political disagreements. But these efforts again were to no avail. 

Alec: [00:08:13] But in May 2022, China lifted the restrictions on Canadian canola. 

Sascha: [00:08:18] Well, what changed? 

Alec: [00:08:19] Meng Wang Zelle was released from prison in late 2021. 

Audio clip: [00:08:23] Michael Spavor and Michael Kovrig were accused of spying, have been released and are on their way home. 

Sascha: [00:08:30] Okay. No coincidence, I'm sure. Alec. Australian wine, Canadian canola. These are a few examples of specific products from specific countries. But in Lithuania it wasn't just one product, it was everything. Let's unpack that after the break. 

Alec: [00:08:48] And many wine wholesalers are feeling the pinch, not exporting any bottles with the excess of supply flooding the domestic market causing a decrease in wine prices. 

Sascha: [00:08:58] Welcome back to the Dive. I'm your host, Sascha Kelly. Today I'm joined by my colleague Alec Reihan. And before the break, we spoke about China's use of trade policy to settle political disputes headlined by Australia's 98% drop in wine sales to China. But Alec, wine is just one product. In Lithuania, it was everything. Let's get into it. 

Speaker 6: [00:09:18] The European Union has referred China to the World Trade Organisation for engaging in discriminatory. 

Alec: [00:09:24] Practises against Lithuania. 

Alec: [00:09:26] It started after Lithuania. 

Sascha: [00:09:27] Allowed Taiwan to open a diplomatic. 

Alec: [00:09:30] Outpost in its capital.

Alec: [00:09:32] And in a move that really annoyed China. Lithuania allowed the Taiwanese office to use the name Taiwan rather than Taipei. China saw this as recognition that Taiwan was a separate country and retaliated. 

Sascha: [00:09:47] I'm sensing a theme here. China retaliated economically. 

Alec: [00:09:52] That's right. China stopped approving export permits for Lithuanian producers, any Lithuanian producers, including for agriculture, animal husbandry and timber industries. They were some of the biggest exports to China before the ban. At the time, the director of Lithuania's State Food and Veterinary Services told the Baltic Times that China just stopped audit and certification processes without explanation. Basically, nothing from Lithuania was allowed to be sold in China. 

Audio clip: [00:10:23] China has refused to take in imports from Lithuania, not just Lithuania, but also from countries where the goods have links to Lithuania. 

Alec: [00:10:31] China also halted freight trains to Lithuania, making it harder for Lithuanians to import products made in China.

Audio clip: [00:10:38] Our situation is quite different from from Australia. We're not that much exposed to China. 

Sascha: [00:10:43] Now the good news is that the volume of exports for Lithuania to China was pretty small. They were not as reliant on China as, say, Australia is. But it is the latest example of China using its trade policy and economic power to settle political disputes. 

Alec: [00:10:58] Yeah, that's right. There is a bit of a theme emerging, isn't there? 

Sascha: [00:11:01] Yeah, this naming issue comes up a little bit, doesn't it? In 2021, China also banned certain imports from Taiwan because of the country's decision to rename its representative office in Washington from Taipei to Taiwan. 

Alec: [00:11:15] Yeah, that's right. Earlier in 2021, they suspended pineapple imports. And then later in the year, they suspended imports of sugar, apples and wax apples. Again, around this Taipei or Taiwan naming issue. 

Sascha: [00:11:30] So, Alec, we've touched on Australian wine. Canadian canola. You keep making me say these things to you. Taiwanese fruit. Lithuanian exports in general. How widespread is this issue? 

Alec: [00:11:41] The Australian Strategic Policy Institute suggests China has used coercive diplomacy more than 150 times against foreign governments, all foreign companies since 2010. A few other notable examples. Salmon from Norway After the Nobel prise was awarded to Chinese human rights activists Luge Albo in Norway's capital, Oslo, in 2010. Bananas from the Philippines over the Philippines claims to territorial waters in the South China Sea in 2012. Copper from Mongolia after the Dalai Lama visited the country in 2016. Sascha, I think you get the point. When China is offended diplomatically or politically, they'll often retaliate economically.

Sascha: [00:12:26] Is there anything the international community can do to prevent this? 

Alec: [00:12:31] Unfortunately, not a lot. There are some ongoing disputes at the World Trade Organisation, but it is an international organisation that relies on consensus and voluntary participation of member countries. If China just refuses to play ball as it has on a number of issues, there is little the WTO can do. 

Sascha: [00:12:51] And in the meantime I guess companies selling to China need to focus on diversifying their export markets. There is plenty of risk in becoming too reliant on China. 

Alec: [00:13:01] Yeah, that's right. And I think some of these exporters are waking up to it. Australian wine makers have increased exports to the US. They rose 9% last year and America is now Australia's top wine export market. Sales in the UK remain strong, but Wine Australia is also reporting growth in Singapore, Thailand, Malaysia, India and New Zealand. 

Sascha: [00:13:23] How's Canadian canola doing? 

Alec: [00:13:25] Canadian canola producers are doing the same thing. Although China has reopened their market in 2021, the Canadian Minister for Agriculture announced a funding package to promote Canadian canola in North America and to try and open up new markets in Asia. 

Sascha: [00:13:41] What about the pineapple farmers? 

Alec: [00:13:42] The pineapple farmers, Sascha? This was a whole of country mobilisation in. I won 90% of the exports were sold to China before trying to change their policy. 

Sascha: [00:13:54] That's huge. 

Alec: [00:13:55] And Taiwan's government has started a domestic campaign to support the farmers and to eat more pineapples. They're also working to increase sales in Japan, in Australia, in Singapore, Vietnam and the Middle East. 

Sascha: [00:14:07] Sounds like lots of Hawaiian pizza is on the menu then. 

Alec: [00:14:10] So but Sascha, I think what the takeaway when we list all these countries is that it takes a lot of markets, sometimes it takes the rest of the world to make up for the loss in China's market. That's just how big it is these days, how significant it is to some of these industries and some of these exporters. In a nutshell, that's why China's economic coercion can be so effective. 

Sascha: [00:14:33] Well, let's leave it there for today. Alec, a really fascinating story, and thank you for joining us for today's edition of The Dive. If you enjoyed this episode, then please tell a friend about it. It really is the best way for our podcast to grow. And if you are listening because you've been referred, we have a growing back catalogue that's worth checking out. Our last three episodes have covered the lottery, the chaos in air travel, which I have experienced, and big tech expanding into health care, finance, and even live sport. There really is something for everyone. Remember to follow us on Instagram. Our handle is at the Dive Dot Business News and you can contact us by email at contact@equitymates.com. And of course subscribe wherever you are listening right now so you never miss an episode. Thanks so much for joining me today, Alec. 

Alec: [00:15:19] Thanks, Sascha. I think we should all go out and buy some Australian wine, some Canadian canola and some Taiwanese pineapple to support those industries. 

Sascha: [00:15:27] You've got a deal until next time.