32 thoughts on “Relax, losing access to China won’t make us the ‘poor white trash of Asia’

  1. I agree with the article. Losing access to China’s markets would not be a big deal to most Australians. It’s only a big deal to rich corporates who sell our wealth, making a fortune out of it, while most Australians get nothing to a relative pittance out of it.

    For example, if we lost the Chinese seafood and beef markets entirely… Voila! Australians could buy better quality fish and meat and could also spell fishing grounds and grazing lands to ease ecological pressures. If we stopped selling gas to China… Voila! Australia could use gas to replace dirty coal and imported petroleum. If we stopped selling iron ore to China… we could start selling it elsewhere and even start making (more?) steel again in Australia.

    Losing access to China’s markets would not be a big deal to most Australians. Losing our country to a fully fledged Chinese invasion or foreign influence takeover would make a big difference to most Australians. Just as totalitarian Germany and totalitarian Japan became very dangerous to democratic nations (even admitting the very imperfect natures of various democratic nations), we now see totalitarian China becoming highly expansionist and potentially dangerous to many nations.

    The key is to not squeeze a powerful nation too much, even with an alliance, and yet also not to endlessly appease it. Appeasement does not work. We should grant China fair room and fair trade (if China wants trade) but not appease it in an open-ended fashion. China must accept boundaries like any other nation, not think it can endlessly expand them which it is currently attempting in multiple locations.

    Since China is totalitarian, the presumption must be that it is not benign. Since it is a superpower, the presumption also must be that it is not benign. Superpower and totalitarian states have a very poor track record of benignity. It would be totally naive to expect anything else. Their national self-interest is always paramount. In Realpolitik and Machtpolitik it’s still a jungle out there.

  2. “The high number of migrant workers results in a high ratio of employment to measured population (since the families aren’t counted). As well, because migrant worker wages are so low, Singapore’s citizens can afford to hire migrants as domestic servants and for other purposes.

    After correcting for these biases, Singapore has about the same income per person as Australia, but with a massively-unequal distribution.”
    This one surprised me. I knew of that effect as such, just was utterly unaware about the magnitude.
    The same is true regarding iron ore mining operations in Australia. Would have guessed the local share would be much higher.

  3. Of course, it won’t plunge us into poverty but a 2-3% loss in national income is massive. The displacement effect is the strongest part of your argument – from a market equilibrium we will, initially anyway, now be able to sell in those markets given up by those now switching to supplying markets. China is working its new African connections to reduce its reliance on key Australian suppliers without creating displacement effects. China, of course, is a big owner of Pilbara resources through its investment in Rio so it would need to think hard about the cost-beneft basics of side-lining Australia. It would be nice if China sold off its stake in Rio to a large Aussie superfund (or BHP) and Rio could be forced to relocate its head office to Perth. No more blowing up 46,000 year old cave sites and some respect for the country (and its indigenous inhabitants) who deliver 90% of Rio’s profits.

  4. Comments on this article were closed faster than usual by The Conversation groupthink editorial. I was caught replying to a comment there, so I’ll just post it here:

    “Sorry, but I don’t think your trade arguments stack up…”

    Too right, Chris.

    We need be careful of what the author is selling here with so much glossed over, waving of the hands, and like “no worries”, “she’ll be right” mate.

    Iron ore is a commodity, meaning that if China bought more of it from other producers such as Brazil, there would be less Brazilian iron ore in the market for other customers who would have a greater need for Australian iron ore.

    Iron ore is a global commodity. Brazil will soon get back in the game in an even bigger way (hand wave to that) than before, and will be able to supply China as good and at least as cheap as Australia can, and also supply those “other (more hands waving) customers”.

    Ore of similar quality is the same to the customer wherever it comes from, as is the price they’ll pay. Brazil is closer to a good number of those “other customers”, and has long supplied many.

    And to the extent that Australian iron ore exports did fall, the Australian dollar would depreciate, making other Australian exports more attractive.

    Not only would exports fall, so too would the iron ore price. Expect prices to crash from the current > $100/ton to < $30 where it was headed pre-covid… if there's a buyer!

    The Valemax ships from Brazil can currently ship ore to a far away China for the same cost as the Capemax ships from Australia can to nearby China. And iron ore shipping costs from Brazil to China are set to fall further with China's undertaking the enlarging of the Panama Canal to accommodate super-max oil tankers from Venezuela.

    Soon Australia may not be able to compete on iron ore shipping cost to anywhere.

    Similar points can be made about other exports to China including Australian tourism and education services.

    Hand waving. Worse, foreign students are a huge net cost to the Australian economy.

    A loss of 2% of 3 % of national income…

    Where are these numbers plucked from? Is that with iron ore at > $100/ton, or < $30? Is that at AUD seventy two cents US or at thirty?

    Losing access to China’s market would make us a little poorer…

    A little! Tell that to your “poor white trash” after the AUD has crashed, and when they’ll need to buy imported shoes for their kids, iPhones, and cars – near all the necessities and luxuries of life. Try telling them that when in comparison to Australia prices for such goods become far more affordable in China or Singapore than they are now!

  5. Well, sharing windfalls with as few people as possible, be it by excluding large parts of the population from the gains by denying them citizenship or just by letting fewer immigrants in makes slightly more sense than the usual local utility based anti foreigner reasoning.

    Immigration still has a hell lot economic benefits, the very least for the receiving country. Common sense really, no need for fancy economic models. You get lots of young people who already got their education on someone else’s expense and skew heavily towards the higher educated/healthier parts of the source population. Yes, there are hard to measure costs regarding cultural adaption as well. Those are often dismissed as non-existent racist imaginations. But who’s paying most of that price? Right the immigrant, and that price is not that large either. Immigrants tend to naturally consider which emigration goal is most difficult to adapt to as well.*

    Refuges from wars and the like are not quite as much of a home run in economic terms. But precisely the type of refugee who in all likelihood will make a negative economic contribution are the ones where the moral imperative to help is strongest. Albeit typically, real life deterrence system make sure the ones who need the help most don’t get in on refugee status either.

    *In a perfect world, the immigrant’s original culture would even make a positive contribution to the receiving country introducing some positive change there, alas that tends to remain largely hypothetical if we talk anything more serious than food choice.

  6. “But who’s paying most of that price? Right the immigrant, and that price is not that large either.”

    Dead wrong when talking about Australian ponzi sky-high immigration…

  7. At the moment world population growth is higher than Australia’s, reversing a trend of a quarter of a century where we were winning.

  8. To move one tonne of iron ore 1 kilometer by ship requires 2.3 grams of bunker oil which currently costs around 0.1 Australian cents. That’s about $6.66 to get one tonne from Port Hedland to China. Brazil ore gotta be $17 cheaper to make up for greater fuel costs with additional discount to allow for tying up shipping capital on riskier voyage that takes three and a half times as long. (Riskier in terms of arrival times. Not many cargo ships sink these days.)

  9. No it don’t gotta be, by crikey. The ad goes “oils aint oils” which here may be rephrased as ships aint ships!

  10. Unless they are magic ships, it’s going to take roughly 3.5 times more energy to move a tonne of ocean cargo roughly 3.5 times the distance at the same speed. West to east from Brazil gets a little wind advantage, but that don’t count for much since they stopped putting sails on ships.

  11. No magic surely Ronald! Just plain hydrodynamics (speeds, resistances, etc), mechanics, economies of scale, and the economic imperatives of diversified supply – the mundane. Sure, winds – and currents – may help a little, but, really, serious people have put, are putting, big money on the line here. I expect they’ve more than done the due diligence required.

    Don’t forget, next there’s Simandou!


    ..“Under all scenarios Simandou will be developed, with or without Rio Tinto,” chief executive Jean-Sébastien Jacques told Bloomberg News. “There is a huge incentive for the Chinese to make it happen now,” he said, referring to the industrial activity increase in the Asian giant…

    Major new source
    Simandou could dampen iron ore prices once it reaches full production. The deposit is not just massive — it holds two billion tonnes of iron ore — but the output is expected to have some of the highest grades in the industry.

    You’d have to think it a sure thing that the related Matakong Island deep water port shall accommodate Valemax/Chinamax ships…

  12. Savante, I’m just pointing out that Australia has a distance advantage when sending iron ore to China and India. There are no closer banded iron formations that aren’t already in China or India. If you think I am saying anything else, please let me know so I can know what I’m saying.

  13. Ronald, I’ve pointed out how little that shipping distance matters from now on in absolute terms and how much that change matters overall in relative terms. Valemax ships from Brazil have already begun unloading in some 11 built for purpose and newly expanded ports in China. The cringeworthy Forrest will be further encouraging an inordinate amount of kowtowing in the ABC Boyer lectures in a futile attempt to hang to the past. That ship has sailed whether cast off by Australia or not.

  14. And I explained how shipping doesn’t make a large difference by showing how cheap bulk ocean transport is in terms of fuel costs. This may be very roughly half the cost of bulk transport, but in these days of cheap fuel and cheap capital I’m not really sure how that works out.

  15. how little that shipping distance matters

    You could also view it as an argument about total cost to get iron ore delivered to a Chinese port, not some arcane camel-stacking argument about how much of the total cost goes where. Smarter buyers also care about multiple suppliers and pollution etc, but generally only to a point. But without more explanation, we don’t know whether the Brazilian stuff is cheaper, better or just different.

  16. Moz, as posted earlier it’s been reported that relative to the Australian ore quality the African is far better, the Brazilian about the same, the shipping cost about the same for each, and that diversifying supply is a big driver. Multiple equivalent large suppliers means cheaper ore price, and increased reliability of supply including that beyond any outside 5-eyes arbitrarily imposed “international order” interference.

    What’s your point about pollution? There would seem to be no significant difference in the shipping. Adverse impacts from mining on natural habitat, land, and fresh water systems would likely be worse in Brazil and far worse in Guinea than in WA.


  17. We’re already are the white trash of Asia have been for a while and it has been intensifying.

    It is not necessarily the people themselves, it has been the constant messing with their minds by mass media and tabloid press, populist politicians and megaphones fed lines by cold blooded WASPS at so called think tanks.

    Complacency and safe easy way, toys and trinkets.. that’s the problem.

  18. Savante, Brazil is around 3.5 times the distance from China as Port Hedland in WA so time on the open sea and fuel costs will around 3.5 times higher. If Brazil can teleport bulk carriers 8,000 nautical miles then worrying about what this means for iron ore exports is really burying the lede.

  19. Does anyone in the above argument have money in the game? I mean, do you own shares in Australian iron ore producers? Otherwise, why do you care where China gets its iron ore from? I mean presuming it gets iron ore from somewhere. Australia’s prosperity has little to do with iron and coal exports. China and the global corporations are the big beneficiaries. J.Q. has given you the facts on this but you prefer to believe corporate capitalist propaganda. The bigger picture questions are these. Is current world production of steel, coal and everything else sustainable? Should we feed an unsustainable system with reckless exports or should we leave much of the stuff in the ground so that we retain a livable planet?

  20. There’s no argument, Ikonoclast. An argument is a connected series of statements intended to establish a proposition. I’ve done this maybe twice on the internet. The rest of the time is either just fighting or gibbering. This counts as a fight as all I care about is establishing basic facts about how shipping works and all Savante cares about is something else. I don’t know what that something else is and it would be rude of me to pretend that I do know. Either way, there is no realistic possibility of Savante saying, “Yes, I was mistaken. It will take more than 3 times as much time and energy to get ore from to China from Brazil compared to Australia.” And there is no real chance of me saying, “Ah yes, I see that because the ships are traveling downhill when they come from Brazil the journey requires the same time and energy.” There is also no chance of me agreeing with Savante because I don’t know what proposition he is trying to establish if any.

  21. “Brazil is around 3.5 times the distance so time on the open sea and fuel costs will around 3.5 times higher”

    Ronald, twice now you’ve contradicted yourself on this and gone all over the place with what appears to be a lack of reasoning and wooly comprehension of several basic facts already provided above.

    It goes without saying that global shipping involves big money with lots to be made, and lots to be lost. It’s been established above that the Valemax ships can ship the stuff over existing routes Brazil to China for similar cost as smaller ships WA to China. That means at a similar cost per ton of ore! That is the whole point of someone owning these 67 (so far) Valemax ships – the cost per ton shipped in the lifetime of the ship.

    The hydrodynamics of these much larger vessels means larger ships at non-linearly increased speeds (see Froude Law of Comparison, Froude Number, Reynolds Number for starters… gravity wave propogation, wavelengths, roots of waterline lengths, lengths, breadths, speeds, inertia, viscosity &etc) due to non-linearly decreased lower resistances – so decreased power required per ton , and so on and on.

    Repeating simple linear arithmetic “3.5 times the distance.. fuel.. 3.5 times higher” might cut it only if considering identicle ships in identicle conditions. I pointed out the obvious above: “ships aint ships”.

    A vast amount of money is continually spent on design research aimed at ever increasing a ship’s efficiency when ploughing through water, and at decreasing shipping costs importantly including all fuel consumption efficiencies to be had by whatever way (size, engine design and size, propulsion, propellors, vessel proportions, shapes, surface coatings, bubbles, bulbs etc etc). Leave solving Navier-Stokes equations and all the rest to those naval architiects and physicists with the necessary super computers and tanks involved in such design and testing as the ship owners most assuredly have.

  22. Iko, plenty of Australians have an interest vested in Australian iron ore producers one way or another. Take super investments, for an example, or the exchange rate everyone is exposed to.

    Why care? We should be taxing iron ore exports to the max currently instead of giving the stuff away, and before there is nothing exported to tax.

    Prosperity? Price crash, dollar crash, balance of payments shrunk to negative, relative parity purchasing power then in China or Singapore – JQ has waved his hands about on what this means for future white trash of Asia Australians. JQ has given his chosen opinion with some chosen few facts. There are pluses related to the crash for some, but minuses for many more, and probably for a long time after. It’s taken forty years at least to get the country into it’s sad state, how long do you think it will take to adjust satisfactorily following a crash?

    Recall: “That’s not to say that we should be complacent about the risks of a breakdown in our trading relationship with China. A loss of 2% of 3 % of national income is comparable to the impact of a standard recession and would entail plenty of economic disruption with accompanying unemployment.”

    Only 2% or 3%? And a recession is measured over two consecutive quarters. Do you think she’ll be right in six months? All good mate? More like six years. A depression.

    The foreign students counted as an export as mentioned are in fact a huge net cost. Coming from poorer countries than China any substitutes will just cost Australia more. What tourists are going to replace the Chinese in equivalent numbers with equivalent deep purses? When? So a depression, but a good time for some to import cash and buy out the white trash, I suppose.

  23. Savante, a large cargo ship is around 40% efficient at turning the chemical energy in bunker oil into forward motion. Mordern ships have not been able to increase this three and a half times to 150%. Improvements in ship efficiency occur slowly. But If new ships did have a substantial efficiency advantage and charged less per tonne kilometer they would drive less efficient ships that couldn’t match their price out of business and so would be used to carry ore from Australia.

    Perhaps you think that in order for it to make economic sense for Brazil to export iron ore to China the cost of ocean transport must be the same and are working backwards from that? This is not the case. It only costs a few dollars to dig up one tonne of ore from an open cut mine. What makes iron ore expensive is the huge capital cost involved in getting to the point where the cost of digging one more tonne of ore is only a few dollars. The time it takes to get it all organized is also a factor, as well as the fall in iron ore prices that will result from adding supply. But capital has been cheap since 2008 so there have been people who think adding to supply will be worth it for them.

    I admit I failed to see how lower capital costs would result in higher steel consumption, so demand for iron ore has been higher than I expected. I’ll still expecting demand to drop, but obviously it’s going to take longer than I thought.

  24. Ships aren’t all just thick as planks. But by your reckoning they are simply that, all the same. By your reckoning there’s no difference between shipping in either tiny boats or super-max ships! Nor between freight overland in little box trailers towed by tiny cars or HC and MC trucks! What counts is profitability of the ship over it’s working life, large components of which for any freighter is cost per ton shipped and cost per unit distance/time. Big ships lower these costs, bigger ships much more so. But what would the respective engineers, naval architects, physicists, ship owners, charterers, miners, invested port authorities and terminal owners, insurers, bankers, financiers, and governments know? It’s happening now, but Ronald has spoken.

    No, ships aint ships. Ores aint ores. Mines aint mines. One supplier aint suppliers, risks aint risks, &etc,, capital costs too, of course. It’s the ‘real’ world not some economic model.

    Jeez. Higher steel consumption recently is due to current Chinese economic stimulus via huge post Wu-flu infrastructure spending. At some point, perhaps in three years, that will be wound back again and demand will drop and iron ore price will crash. Australia if not before!! should now seize the moment and tax to the max those ore exports while it can, while there are any to tax.

    “But capital has been cheap since 2008…”
    – Massive Chinese iron ore demand for much of that time has been the driving force and is again. Demand was deliberately wound back in China a few years ago, prices fell, mine disasters happened elsewhere, domestic politics also happened, covid happened worse in places, demand was quickly ramped up again by China, steelmakers’ stockpiles grown, shipping terminals expanded very large ship capability, new unmatched quality mine, rail, and port construction now set to commence (Chinese builders = fast)… Game on, game over.

    “they would drive less efficient ships that couldn’t match their price out of business and so would be used to carry ore from Australia.”
    — Watch that space! No need to spend the capital on ship and port upgrading to date. Times have been pretty good for those lucky few concerned… so far. Riskier times and tight margins ahead may well rule out such spending, cf mothballs.

  25. We’re already are the white trash of Asia …

    Would it surprise you if I said I was white but not trash?
    Would it surprise you if I said I was trash but not white?

    If you want to tell me that you are white trash, I won’t argue with you.

  26. An all-out trade war with China would cost Australia 6% of GDP
    November 30, 2020 6.17pm AEDT
    Rod Tyers, Winthrop Professor of Economics, University of Western Australia and Yixiao Zhou, Senior Lecturer in Economics, Australian National University


    China accounts for more than a third of export dollars earned by Australia.

    The figures, for the 12 months to October, cover the period of coronavirus disruptions and disputes over trade.

    They apply to physical exports rather than harder to measure services, and are dominated by record high Chinese takings of Australian iron ore.

    But they mightn’t last.

    …Australia produces few manufactured goods and pays for the considerable quantity it imports by exporting commodities, mostly to China.

    The loss of this export channel would be serious, but how serious?

    Iron ore matters more than we think

    Conversation authors John Quiggin and James Laurenceson argue the effects would be small. They point out that mineral exports account for only 1% of Australia’s national income and that China would hurt itself if it cut off the flow.

    But China’s size means the damage to China would be proportionately smaller than the damage to Australia.

    And while the mining sector is not the largest in Australia’s economy, its growth since 2002 has brought with it a secondary boom in Australian service industries. Australia’s East Coast cities have prospered even while most of the mining has been occurring in the Pilbara.

    Read more: Relax, losing access to China won’t make us the ‘poor white trash of Asia’

    The mining boom brought a substantial boost to our terms of trade (the earning power of our exports relative to the cost of our imports), pushing up the Australian dollar and making imported goods much cheaper.

    A reversal would see our terms of trade fall and our cost of living rise.

    Some commentators place store in our ability to redirect exports of wine and barley, and whatever else is affected by trade disputes, to other customers.

    At least for iron ore, however, there are few other customers at current volumes. This suggests a decline in export prices and in Australia’s terms of trade.

    Damage to us, a mozzie bite for China

    So its worthwhile attempting to quantify the damage from a winding back by China of its imports from Australia.

    We have conducted simulations of the effect of shutting down Australia-China trade by 95% in which we allow time for capital flows and production and employment to readjust and assume that monetary policy and fiscal balances remain unaltered throughout the world.

    We find the shock to the demand for Australian products is large and it is only partially offset by the redirection of our exports, even with a large depreciation of the Australian dollar.

    Read more: Hopes of an improvement in Australia-China relations dashed as Beijing ups the ante

    The reason for this is that the loss of Chinese exports reduces the rate of return on investment in Australia, forcing financial markets to reallocate finance to other parts of the world.

    The effects on Australian gross domestic product and real disposable income per capita are big (6% and 14 %), while those on China are mosquito bites by comparison (0.5% and 2.4%).

    It’s wise to be prepared

    Important things we can do to hedge against such an occurrence include maintaining …

    10:00pm, Dec 1, 2020 Updated: 7:59pm, Dec 1
    An all-out trade war with China would cost Australia 6 per cent of GDP

  27. Some of the bigger picture seen here:

    Iron Ore Imports by Country

    http ://www. worldstopexports.com/australias-top-10-exports/
    http ://www. worldstopexports.com/australia-major-product-supply-advantages/
    http ://www. worldstopexports.com/chinas-top-10-imports/
    http ://www. worldstopexports.com/chinas-top-import-partners/
    http ://www. worldstopexports.com/australias-top-import-partners/

    World’s Top Exports
    http ://www. worldstopexports.com/

  28. Better late than never?

    How to politely drop an iron ore bomb on not China
    By David Llewellyn-Smith in Australian Politics, China American Cold War, Commodities, Iron ore price 10:15 am on December 3, 2020

    …In short, cap Australian (iron ore) exports at 650mt and make China bid against everyone else for volumes. The price will double or triple.

    Of course, the policy would not be directed at China.

  29. 201203Th Iron Ore (US$/tonne) current 137.80, week 129.95, month 117.70, year 88.00

    ASX Market Update
    Morningstar, Friday 04 Dec 2020 closing

    …Major Brazilian miner Vale overnight said it would not meet its production forecast for iron ore this year. The miner, like much of Brazil, has grappled with coronavirus infections and restrictions. The report means more demand for Australian iron ore from Chinese steel makers. Investors pounced. Fortescue Metals, which focuses on iron ore more than its main rivals, reached a record price of $20.77. Shares closed 13.27 per cent higher to $20.65. Rio Tinto gained 6.87 per cent to $112.20 and BHP rose 4.94 per cent to $41.25. Investsmart strategist Evan Lucas said the results were a simple case of supply and demand. “The demand from China for iron ore is only increasing,” he said. “Because the supply from Brazil is lower, China is having to take more from Australia and that’s driving up the price. “Iron ore is one thing that the Chinese won’t touch with any sort of geo-political tensions they’re engaging Australia with.”

    The Chinese were the catalyst for the other development, after they allowed shipments of Australian coal despite trade tensions. A Bloomberg report said a ship carrying Australian thermal coal, which had been among 50 ships waiting months to unload, was being allowed in. Shares in Whitehaven Coal closed 8.79 per cent higher to $1.48. The mining developments helped enthusiasm for the Aussie dollar, which rose above 74 US cents.

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