Levy on iron ore exports would test China’s mettle

Bottles of Australian wine are displayed at a supermarket in Hangzhou, in eastern China's Zhejiang province. Picture: AFP

When my wife decided she wanted a new clothesline this year, we thought we should buy the good old, Aussie-invented Hills hoist. Then we discovered Hills hoists are now made in China. As they are made from galvanised steel, I suppose it made commercial sense for Hills to move production to where more than half the world’s steel is produced.

Australia is the world’s largest exporter of iron ore and coking coal — the two key ingredients that go into making steel. Yet we are now a net importer of steel, something that should be more widely acknowledged as a cause for national shame.

Modern times are known as the information age but it is steel that has unlocked the greatest economic advancement in history. Just 30 years ago, two of every three people in our region lived on less than $US1.90 a day. Today, fewer than 5 per cent of people live in such extreme poverty.

Such rapid economic advancement came about more because of a doubling of steel production than the invention of the mobile phone. China has grown its steel production by more than 20 times in a generation. Steel is what has built the tractors, highways, trains and apartment buildings that have allowed so many to escape from the crushing poverty of subsistence living.

China has become the dominant producer of steel because of enormous government assistance to its industry. The latest evidence, compiled by Dr Usha Hayley in 2014, showed that 80 per cent of China’s steel industry profits came from government subsidies. Researchers do not have more accurate or recent data because the Chinese Communist Party still refuses to disclose the full amount of its subsidies, despite that being a condition of its joining the World Trade Organisation 20 years ago.

However, no matter how much government largesse it provides, China would not be able to produce more than half of the world’s steel if not for Australian iron ore. Australia exports almost 900 million tonnes of iron ore a year. The next biggest exporter is Brazil at about 350 million tonnes, and after that it is daylight, and then the Ukraine at just 45 million tonnes. China gets about 60 per cent of its iron ore needs from Australia.

Iron ore is the one product that China has not slapped tariffs or restrictions on in its increasing trade war with Australia because it cannot easily replace our supply. China’s trade action has already caused massive economic harm to our beef, barley, seafood and wine industries. To avoid further harm we need to make the Chinese Communist Party pay a price because that will be the only thing that will stop further trade restrictions.

We should apply a levy on exports of iron ore to China. The funds raised can be used to compensate the Australian industries harmed by China’s actions. Our exports of iron ore to China amount to $85bn a year. So even just a 1 per cent levy would raise more than $800m a year, more than enough to assist those industries harmed by China’s unjustified trade actions.

We could then signal that every time China takes further action against Australian exporters, the levy would go up. We could signal that the levy would be removed if China ended its unjustified trade restrictions.

Some will argue that an iron ore export levy would cause China to look elsewhere for its iron ore needs and kill our iron ore golden goose. But China is doing that anyway with its development of the massive iron ore deposits in Guinea, and its faltering attempts to support the growth of the Brazilian iron ore industry.

We are better off encouraging a more stable and diverse spread of steel production across the world. We should work with like-minded countries to increase the production of steel in non-Chinese countries so that the world does not just unduly rely on Chinese steel.

Such action has precedent. The EU began its life as the European Coal and Steel Community, which managed steel production levels across countries so as to reduce tensions. And in the 1960s Japan agreed to limit exports of its government-subsidised steel to the US so as to maintain balanced production between countries.

Such an agreement could also see Australia return to growing our own steel production. We were once a significant producer of steel, making much more than just clotheslines. Everyone is in love with the idea of growing Australian manufacturing. We should start by adding value to our high-quality natural resources such as iron ore and coal and creating thousands of Australian jobs.

If we help other countries increase their steel production that would help the world reduce its dependence on a bullying and aggressive Chinese Communist Party.

Matt Canavan is a Nationals senator for Queensland.