Australia’s barley producers are about to feel the full force of Chinese protectionism after the Ministry of Commerce (MOFCOM) announced on Monday that an 80.5% tariff would be imposed on barley exports from Australia.
The news came after a two-year investigation into supposed dumping of Australian barley in the Chinese market, causing substantial damage to domestic barley producers.
Wait hold on… supposed what? Dumping? Yes, that’s the correct term, and for those new to the word, it has nothing to do with a romantic relationship between Australian barley farmers and Chinese consumers going sour!
Dumping, in the wonderful world of economics, refers to a manufacturer of a good selling it in a foreign market at a price below the existing market price in both the foreign market and the domestic market. This allows the exporter to compete with foreign producers, potentially driving them out of their own market as they are unable to compete at such a low-price level.
The introduction of an 80.5% tariff on Australian barley coming into China will increase the cost of selling in the Chinese market dramatically. The only option for barley exporters in Australia will be to increase the price, restoring balance in the Chinese market and protecting domestic producers.
Barley exporting is big money in Australia, accounting for over $800 million of agricultural exports to China each year. This huge tariff is likely to put a huge dent in the volume of barley exports, and with worsening trade relations between the two countries, Australia will be hoping to resolve the issue quickly before their current account gets damaged further.
THINK LIKE AN ECONOMIST!
Q1. What is meant by the term tariff?
Q2. With the use of a diagram, show the impact of a tariff on the market for Australian barley in China.
Q3. Explain why dumping in a foreign market is bad for domestic producers.
Q4. Evaluate the impact that worsening trade relations with China is likely to have on Australia’s current account.
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