PERSPECTIVES | Four myths about Australia-China trade that just won’t die

This article appeared in UTS:ACRI's Perspectives on September 17 2025. Perspectives is the commentary series of the Australia-China Relations Institute at the University of Technology Sydney (UTS:ACRI), offering research-informed viewpoints on developments and debates in the Australia-China relationship.

It was already clear to the Governor of the Reserve Bank of Australia in 2011 that, ‘The proverbial pet shop galah can by now recite the facts of Australia’s trade with China’.  

Since then, the value of Australia’s two-way trade with the People’s Republic of China (PRC) has tripled. 

Yet despite the headlines it has generated, myths – or at least distortions – about the Australia-PRC trade relationship have proliferated. 

The first is that the dollar amount might be large but it is all about iron ore.  

True, iron ore accounts for around 60 percent of the value of Australia’s exports to the PRC. But run down the list of Australia’s top 25 exports and no other country is close to appearing more frequently as a top-three source of demand. 

Aside from minerals and energy, the PRC is also by far the largest market for agricultural, fisheries and forestry products. Ditto for services, like education and tourism. The PRC is Australia’s largest source of imports too.

This means that even if you take away the most valuable export and import categories (iron ore and telecommunications equipment), Australia’s two-way trade relationship with the PRC is still worth $198 billion. That remains far greater than the full gamut of trade with the US ($133 billion) and Japan ($108 billion). 

The second myth is that the best days of the Australia-PRC trade relationship are in the past.  

Three essential factors drive trade: economic complementarities, purchasing power and policy settings. 

The PRC’s economy isn’t going to get smaller. The International Monetary Fund’s baseline forecast is that between 2025-2030, the PRC will account for 23.0 percent of world economic growth. That compares with 15.2 percent for India and 11.3 percent for the US.  

Both Canberra and Beijing also remain committed to the China-Australia Free Trade Agreement, which stipulates near-zero overall tariff levels.  

That leaves trends in economic complementarities. 

The big Australian miners like BHP and Rio Tinto have long forecast that the PRC’s demand for iron ore would begin to moderate in the mid-2020s as less steel was needed for property and infrastructure development. 

But this demand will not fall off a cliff. In 2015, the big miners were accused of engaging in ‘external propaganda’ when they told markets their expectation was that the PRC’s annual steel production would increase from 800 million tonnes at the time to peak at around one billion tonnes. 

The miners were right: the PRC’s steel production hit one billion tonnes in 2019 – and has remained there every year since. 

Until now demand for steel from the PRC’s manufacturing sector has offset weaknesses from property and infrastructure. Looking ahead, academic sources and market intelligence firms have forecast that the PRC’s steel demand will fall fractionally each year to reach around 900 million tonnes in 2035. 

There is a genuine and serious risk to Australia’s iron ore exports that comes from the PRC’s commitment to decarbonising its steel supply chain. But the PRC will still want iron ore. The challenge for Australia is to engage with the PRC to work out how this supply chain can be managed in a less carbon-intensive way. 

The past five years have also seen major new areas of Australia-PRC trade open. This year, lithium spodumene exports to the PRC are expected to be worth around $5 billion, up from $1 billion five years ago.  By 2035, it is forecast that 43 percent of all cars imported into Australia will come from the PRC, up from 17 percent now.   

The third myth is that the Australia-PRC economic relationship has turned from being a business opportunity to a security risk. 

It’s not hard to see why this fear has gained currency. In 2020, Beijing disrupted access to the PRC market for around a dozen Australian goods. The last of these restrictions was only removed in December last year.  

But the big lesson from that episode was Beijing’s unwillingness to disrupt most of the big-ticket items in the trade relationship. Iron ore, LNG, lithium, wool and more continued to flow freely. That’s because the PRC needs Australia as a supplier as much as Australia needs the PRC as a market. 

Beijing was also unwilling to disrupt Australian supply chains, presumably because that would have meant putting PRC income and jobs at risk by crimping the sales of local companies and turbo-charging a shift by Australian importers and those in other high-income, liberal democracies to alternative suppliers. 

Another lesson was that even for those goods that Beijing did disrupt, most Australian producers were readily able to defend themselves. If PRC importers didn’t want Australia coal, barley or beef anymore, importers in plenty of other countries still did. 

A final myth is that the future of Australian trade policy lies in friendshoring rather than the traditional, non-discriminatory approach of open regionalism. 

Friendshoring is an alluring idea: as strategic competition heats up, geopolitical risks to Australia’s trade can be mitigated by buying and selling more with countries that are aligned in the security realm. 

But while capitals might prioritise geopolitical alignment, they don’t trade; businesses and households do. And these private sector actors make choices based on market opportunities and quality and price considerations. 

Whatever diplomatic support Washington offered Canberra when Australian goods lost access to the PRC market in 2020, that didn’t stop American companies from snapping up the largest proportion of lost Australian sales. 

When prominent political figures in Washington, London and elsewhere urged their compatriots to stock up on Australian ‘freedom’ and ‘democracy wine,’ these calls were ignored. During the years that Australian wine was locked out of the PRC, the second and third largest markets, the US and the UK, shrunk. 

Both the Joe Biden and Donald Trump administrations have also shown a much greater commitment to using US financial firepower and policy levers to drive onshoring rather than friendshoring. 

Australia could supply the US with as much lithium as it could ever need. But instead, the US Department of Energy has doled out subsidised loans to construct one of the world’s largest lithium mines in Nevada. Major Australian lithium producers have also been denied access to subsidies contained in the Biden administration’s Inflation Reduction Act. And changes to the US Defence Production Act to include Australia as a ‘domestic source’ only apply if US demand cannot be met by a supplier from North America. 

Australia’s public debate about trade engagement with the PRC would be better served if the ‘pet shop galah’ were to repeat facts and rigorous evidence, not myths and distortions.