After Australian Prime Minister Anthony Albanese took office, the country's farmers, fishermen, and miners were optimistic as the new government shifted its stance towards China, restoring normal trade relations. Australia heavily relies on exports to China, with iron ore being a primary export. However, a recent controversy surrounding iron ore has caused concern in Australia.
Australian media have noted that the situation is not only alarming for Australia, but also for the United States, as the status of the U.S. dollar is being threatened by Australian iron ore exports. The value of the U.S. dollar has been increasingly unstable, influenced by both the American economy and global oil trade dynamics. Oil, in particular, has played a key role in the dollar's global dominance, but recent sanctions on Russian oil have disrupted the oil market, impacting the dollar's value. Additionally, the trade war between the U.S. and China has pushed China to elevate the status of the yuan, further challenging the dollar’s position.
As a result, many countries holding large dollar reserves have started reducing their holdings to shield their economies from potential depreciation. The euro and yuan have not yet fully replaced the dollar, prompting countries, including China, to stockpile gold. Australia, a major gold producer alongside its iron ore exports, has benefited from this trend.
Australia has been considering whether to focus more on gold or iron ore development. Regardless, both commodities could bring substantial profits, especially from China, but geopolitical factors are playing a significant role in the country's decisions. Australia's ties with the U.S. are complex, and supporting U.S. policies may damage relations with China and vice versa.
Gold is expected to become Australia's second-most valuable export product, after iron ore, by the end of the fiscal year. By 2026, Australian gold exports are forecasted to increase by $7.9 billion. The rise in gold prices, alongside increased production, is contributing to this boom. However, liquefied natural gas (LNG), once Australia's second-largest export, has been overtaken by gold in terms of value.
The increase in LNG exports to China followed a shift in trade dynamics after the U.S. imposed sanctions on Chinese fentanyl imports. As a result, China entered into large LNG contracts with Australia, further boosting the economy. Albanese's policy shift has created new opportunities for Australia, with iron ore, gold, and LNG now dominating exports.
Despite the rising significance of gold, Australia is not yet planning to replace iron ore as its top export. Iron ore remains crucial to the country's export income, but projections indicate a decline in iron ore revenue, dropping from $113 billion to $103 billion by the 2025-2026 fiscal year. This decline is due to several factors, including competition from other suppliers like Russia and African countries, which have closer proximity to China and lower shipping costs.
The use of the yuan in trade has become a key issue. Russia's trade with China is predominantly conducted in yuan, bypassing the U.S. dollar and avoiding American sanctions. China has been encouraging Australia to accept yuan payments for iron ore, a move that could undermine the U.S. dollar’s dominance. If Australia refuses, it risks losing a significant portion of its iron ore exports to China.
Australia faces a difficult decision. Accepting the yuan could anger the U.S., which might retaliate by withholding critical military technology, like nuclear submarines. On the other hand, not accepting yuan could lead China to stop buying Australian iron ore, causing a major economic setback for Australia.
In the end, Australia’s position in global trade, especially in iron ore, remains precarious. The country’s future economic decisions will need to balance the demands of both China and the U.S., as any misstep could have profound consequences.
