Unintended consequences of China’s wine tariffs

There is every indication that the relationship between China and Australia regarding wine has indeed 'soured' (pardon the pun) to the point that if it continues, the relationship will be well and truly 'corked', forcing Australian winemakers to concentrate on the USA and English markets.

My predication, however, is that China regrets their predatory tariff move given the fact that there are limited worldwide producers which can supply the wine quality that Australia does – where else can you get a Barossa Valley Shiraz with the quality of fruit and structure that say a John Duval wine exhibits? Nowhere – except the Barossa. So, if the Chinese consumer market starts knocking on the doors of Australian winemakers demanding our wines, then they may be in for a rude shock if our wines have found a new market resulting in shortages of premium wines.

The question remains: 'to what extent can we blame the Australian government for failing to 'engage' with China properly' considering COVID-19? The answer seems to be in the fact that the export threat came after Australia led international calls for an investigation into the origins of the coronavirus which is just one of a long list of diplomatic tit-for-tat points with China.

Whatever the prognosis, the Australian domestic market is resilient with reports from various government and private research sources confirming that the consumption of alcohol may have in fact risen under COVID-19 with on-line sales growing.

Whilst the initial impact of the anti-dumping investigation on producers saw a correction in the share prices of major wine producers, many like Penfolds, maintains that it remains committed to China as a priority market and will continue to invest in its Chinese business and its relationships with customers and consumers.

The tariffs ranging from 107.1 per cent to 212.1 per cent that would be imposed on Australian wine will result in unintended consequences for China.

The announcement on November 27 by the Ministry of Commerce in China on the anti-dumping investigation of wine originating from Australia lacks substance and specific details.

The assertion that there was dumping of imported wine from Australia with a subsequent negative impact on China's domestic wine industry is baseless as there are no reliable details to substantiate the effect on the Chinese domestic market.

The $1.3 billion a year in exports of Australian wine to China will result in higher prices for Chinese consumers and now force Australian winemakers to seek more opportune markets.

Tariffs can have unintended side effects making the Chinese domestic industries less efficient and innovative by reducing competition. They also hurt domestic consumers since a lack of competition tends to push up prices. Chinese importers will pass the costs of tariffs on to their customers which is indeed an unintended consequence of using tariffs to make political points.

The Australian wine industry is right to hold the view that it is 'surprised' by the timing of Chinese tariff move with sales peaking during the festive season. I have every confidence that the Australian wine industry will be the long-term winners in this era of tit for tat diplomacy.