What is a tariff? Why has China put tariffs on Australian wine? What does that mean for me?
The Chinese Government announced last week it was placing tariffs on all Australian wine imports.
Australia’s wine trade with China is worth $1.2 billion. The tariffs will range between 107% and 200%.
Tariff: A tax on a specific type of good imported from a specific country. For example, the U.S. might tax cars coming from Japan. Or China might tax wine coming from Australia.
Why would a country use a tariff?
Tariffs have a couple of different purposes. The clearest one is that the country imposing the tariffs can raise some money. If the U.S. taxes cars coming from Japan, it means the U.S. can get some money they can then use to fund schools or hospitals.
So if it’s just free money, why don’t countries put a tariff on everything?
They… sort of used to. Until they slowly realised it meant consumers were being forced to pay more for essential goods. If the U.S. puts a tariff of cars coming from Japan, it means those cars will be more expensive to buy - Mitsubishi or Toyota would be forced to raise their prices to cover the new tariff.
That sounds bad then. Is a tariff ever worth it?
Sometimes. Here’s a couple of the main reasons countries use them:
To give their local industries a chance: Think of the car example above. If Japan is really good at making cars, but the U.S. wants a quality car manufacturing sector, they might want to put a tariff on Japanese cars until the local industry can compete without Government help.
National defence: If Australia relies on Russia for the type of metal required to build submarines, it might think it a good idea to build up a local industry to make sure we can build submarines if things ever get heated with Russia.
Why has China put tariffs on Australian wine?
China has accused Australia’s wine industry of breaching international trade guidelines by participating in what is called dumping.
Dumping means flooding an existing market with really cheap goods to not give anyone else a chance of getting a foothold. For example, if Italy was the best leather shoe maker in the world, they might flood the leather shoe market with really cheap shoes to prevent other countries from getting enough money to compete with their excellent leather shoe suppliers.
Has Australia been dumping its wine onto the global market?
The Australian Government denies the claim. As does the country’s peak wine body.
Some experts point to the broader tension between Australia and China as an underlying motive for the tariff. Over the past year, the two countries have been fighting tit-for-tat over several similar trade issues, as well as clashing over whether to set up an inquiry into the origins of COVID-19.
OK, so what does this all mean for me?
If you’re part of Australia’s wine industry, it’s a big blow. The tariffs could lead to job losses and business closures. If you live in China, it might mean your favourite Australian wines jumping in price.
If you’re not in either of those categories, not much will happen. Although some politicians and business leaders are calling for Australians to rally behind winemakers by purchasing local wine over Christmas. Don’t mind if I do.