Officials warn US, EU manufacturing boost could hit Australian miners Elouise FowlerReporter
Jul 1, 2024 – 12.01am
Increasing efforts by Europe and the United States to boost domestic manufacturing at the expense of Chinese production could mean the Australian resources sector will indirectly suffer, officials in Canberra warn.
In a quarterly outlook statement, the Industry Department’s economists said measures “by a number of governments to intervene in trade with China will have implications for the direction and quantity of Australian resource and energy exports”.
These interventions “may see the competitiveness of Chinese manufacturers deteriorate”. Exports from Australia could be more costly, and suffer, if they had to make their way to North America or to Europe.
China is Australia’s largest buyer of resources. In the last financial year it accounted for 35 per cent of sales, or $156 billion, to feed its steelworks, power stations and factories.
Europe made up just 3 per cent of Australia’s resource sales by volume, and the US did not feature on a list of major export destinations compiled by the department officials.
The European Union and the Biden administration have both put major support for domestic manufacturing at the centre of their economic agendas. World Bank data shows that the EU’s share of manufacturing fell from 24 per cent in 2008 to 16 per cent in 2022, the last time figures were made available. China’s rose to 31 per cent.
In the US, the Biden administration’s flagship $US368 billion ($550 billion) Inflation Reduction Act is designed to incentivise renewable energy and electric vehicle manufacturing. Simultaneously, the US has increased tariffs on Chinese imports including EVs, their batteries and other products like computer chips. Re-route supply chains
“The immediate impact of the move will be muted, mattering most for batteries used for stationary storage purposes,” said the Industry Department economists in the report, to be released on Monday.
“The 100 per cent tariff on Chinese EVs will likely prevent Chinese producers capturing a meaningful share of the US market.”
The European Union has also imposed additional duties on Chinese EVs.
The Industry Department outlook notes Japan and South Korea may also take some share of China’s manufacturing, as countries re-route supply chains from Beijing. Unlike Europe and the US, Japan and South Korea are major buyers of Australian resources.
Japan is Australia’s second-largest customer, accounting for 21 per cent, or $98 billion, of resources exports in the last financial year. South Korea, the fourth-largest buyer, bought 10 per cent of Australia’s resources, or $45 billion.
The department acknowledged that global moves to intervene in trade with China will have implications for the direction and quantity of Australian resource and energy exports, but for the moment Beijing is Australia’s “primary” customer.
China bought 76 per cent of Australia’s iron ore last financial year, and was Australia’s second-largest buyer of LNG, behind Japan. China, a major investor in Australian lithium, was also the biggest buyer of the commodity from Australia.
Despite an increasing desire for more domestic processing of critical minerals – outside Chinese supply chains – Labor last week unveiled draft plans to open $13.7 billion in production tax credits to any company that pays tax locally, including Chinese interests.
The consultation papers, released by Treasurer Jim Chalmers, said companies subject to Australian income tax would be able to claim the 10 per cent tax credit for onshore downstream processing. The credits are modelled on the incentives available under the Biden administration’s Inflation Reduction Act.
The Industry Department, in its report, notes that the US presidential election in November will have “significant implications” for the demand of critical minerals.
“The pace of US adoption of EVs and renewable energy technologies ... could change depending on the outcome of the US presidential election in November, with significant implications for the demand for Australian critical minerals in the short term,” it notes, in reference to Donald Trump, the frontrunner. ‘Socialist bills’
Mr Trump has described President Joe Biden’s policies as “mammoth socialist bills” and says he will scrap them if elected.
However, the Industry Department’s economists expect growth in demand for critical minerals in other major markets, Europe and China, “is likely to rise strongly”.
The June quarter report contains two-year forecasts that show Australia’s resources and energy export earnings are estimated to have declined by 10 per cent to $417 billion in the year to June 30, from a record $466 billion in previous corresponding period.
Continuing falls in prices for bulk commodities such as iron ore, coal and LNG are expected to bring earnings down to about $356 billion by the 2026 financial year.
“Importantly, we are seeing strong demand for the critical minerals and strategic materials needed for low-emissions technologies, including lithium, nickel, copper and aluminium,” said Resources Minister Madeleine King.
“The forecasts underscore the need to support growth in our emerging critical minerals sector, which the Albanese government will deliver through a production tax credit for critical minerals.”
