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Trade wars and the tricky business of wine exports

Wine

With the threat of trade wars in the air, Philip White ponders the nature of Australian wine’s increasing dependence on China.

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“China? Win a trade war? Against the USA? You gotta be jokin!”

It’s pretty easy to get a rise like that if you ring around a few Australians who export wine to China. They seem cocky.

If only things were so simple.

We sold $848 million worth of wine to China in 2017, a 63 per cent hike. This was a significant slice of Australia’s total international export figure of $2.56 billion for the year, a 15 per cent increase.

Australian exporters remain transfixed on the notion of China’s burgeoning middle class learning to drink. There are 1.4 billion Chinese drinking, on average, 2.1 litres of wine per capita per year. Australians drink 26.8 litres.

France still sells twice as much wine in China as we do; China’s total vineyard is roughly the size of Australia’s.

There was a sigh of relief around exporters who read international affairs when Donald Trump suddenly announced the new trade war with China was off while he concentrated his hatred on whatever’s left of Iran.

The tricky bit’s not so much that China may make trade harder for our wine exporters because of our affinity with the US. Those exporters are still enjoying the increase triggered by China’s relaxing of tariffs from up to 20 per cent to 3 per cent with the Free Trade Agreement of December 2015, with the promise of further tariff elimination down the track.

The real threats are the uncontrolled messy bits that fall out of the sides of a trade war whether it’s on or off.

With a chap like Trump driving the free world like a stolen car, anything can happen.

China is unlikely to copy Trump’s edict on Iran – you trade with them you don’t trade with us – but things change quick now and Australia is, well, good mates with the US, which also buys our wine and sells some of its wine into China.

The Oz business cosmos shivered when Trump’s choice for US ambassador to Australia, Penfolds’ enthusiast Admiral Harry Harris, was instead sent to South Korea. The notion that Harris was head of US Pacific Command added a martial sheen to the insult.

Now we have the Koreas off holding hands without any help from Trump, while China launches its new aircraft carrier, lands the first long-range bombers on its new islands in the South China Sea and continues to tease the likes of those conducting war games with us in Darwin, and the Indians, who have just sent warships around the Vietnam corner to be part of the fun.

Before Trump announced the trade war was off, China had hiked its tariff on US wine by 15 per cent to 67.7 per cent and left the threat of further increases open.

The US bourbon and whiskey industries which had seen China as a hopeful export market were suddenly whacked with a hike, while shippers discovered their wares were being given the surly treatment, like the 100,000 bottles of bourbon that found their entry through the port of Zhuhai suddenly, inexplicably blocked.

Which reminds me of a visit to Shanghai when I asked my host why there were so many new Mercedes cars driving around without registration plates.

“Customs,” he said. Nothing more. At that point, when customs needed cars, it took the best ones off the ships that kept delivering them.

It was a good week for phone calls. Trump’s call on the trade war seemed strangely coincidental with that other widely-reported phone job when Treasury Wine Estates boss Michael Clarke responded to The Australian Financial Review’s report of stacks of cheap TWE wine building up on China’s wharves. That piece had sent the company’s stocks plummeting.

Clarke heroically shadowed the Trump-Iran-rest-of-the-world threat, telling China it would trade at all levels or none at all: no more cherry-picking: if it wants Grange, like everybody else on Earth, it’s gotta first sell quite a lot of Wolf Blass and Rawson’s Retreat. TWE shares went back up, returning around $731 million to the kitty.

“They’re hoping to put pressure on Treasury Wine Estates to be able to give them something or give relief where we’re not prepared to give relief because we are absolutely focused on running a disciplined business globally, not just in China,” Clarke said. “We’re not forcing anybody to be part of our business model.”

Since Australian winemakers discovered China, there has not been a mention of China’s business model in the realms of human rights, freedom of speech, Tibet or political prisoners. Not from our wine exporters. Compared, say, to the embargoes placed on South Africa to stop apartheid in the ’70s, China’s had a fairly easy run as far as access to our ethanol goes.

Don’t mention the Opium Wars.

Behind all this month’s shenanigans I found myself referring to the statements Hong Kong’s Civic Party chair Alan Leong made during last week’s meetings with US lawmakers.

“The world cannot understand China without first understanding Hong Kong, and what has been happening here,” Leong said.

Warning against China’s replacement of liberal democratic values with its exported “China model”, he said: “Hong Kong is the only place in China that has been inhabited predominantly by ethnic Chinese and yet practises separation of powers and rule of law with self-disciplined legal professions and an independent judiciary. We use our laws to protect rights and freedoms.”

But he also warned against a trade war, saying it would “drive China further away from universal values such as democracy, freedom, and rule of law … As a staunch supporter for free trade, I am convinced that only peaceful and open engagement with China can lead to democracy. It takes time to convert China.

“We must be confident that our values and institutions can withstand the severest of challenges.”

Diplomatic, sure, but stern. In all their reams of triumphant press statements I’ve heard nobody in the Australian wine business say anything like that.

In the meantime, it’s very difficult to find anybody in our government who can succinctly explain just how much of Australia’s wine industry is now in Chinese hands.

Whatever happens with these trade wars and rumours of trade wars and the threat of real fighting wars, they’ll never put tariffs or embargoes on their own products, will they?

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