Remember in June when China called a halt to purchases of U.S. soybeans and then stopped buying U.S. soybeans? Or last year, when China blocked imports of Australian coal and then stopped buying Australian coal? Yeah, me neither.

That’s the way to think about Beijing’s latest “ban” on Australian coal. China has suspended purchases and told power stations and steel mills to stop using product sourced from its trading partner, people familiar with the matter told Bloomberg News on Monday. There’s no reason to doubt the seriousness of the intent here — but if there’s one thing we’ve learned from previous episodes of this sort, it’s that China is unlikely to follow through.

Take the last coal kerfuffle. The port of Dalian was reported to have suspended imports last February, leading to fears that the simmering diplomatic tensions were going to devastate Australia’s largest export trade(1). In fact, the opposite happened: China’s imports of Australian soot rose about 8.3% over the subsequent 12 months compared with the previous year, and have continued to grow since then.

The same thing happened with soybeans. Despite reportedly ordering state-owned companies to halt U.S. purchases in June due to clashes over Hong Kong, just three months later the country was racking up a record volume of orders from American farmers. Anyone who sold soy short on the bad news out of Beijing would have missed out on the best quarter for Chicago soybean futures in four years.

There’s good reason to think that China’s imports of Australian coal really will slow over the coming months. About half of the trade consists of the coking coal used in steelmaking, and the usual inventory cycle could very well suspend that activity shortly anyway. 

China’s steel output in the four months through February is typically about 10% lower than in the previous four months, as winter pollution control measures and the slowdown in economic activity around Lunar New Year stall production. That’s likely to be particularly accentuated this year because the country is sitting on unusually high inventories of major steel products, meaning there’s little need at the moment to start making more:

There may be a similar picture emerging around the thermal coal burnt in power stations. Massive summer floods and the ongoing construction of new dams left China’s hydroelectricity output about 26% above five-year average levels in August. If that trend continues through the coming months — as floodwaters are emptied from reservoirs to make room for the next season’s rains — it could take a decent bite out of coal’s share of electricity generation.

Even if thermal coal demand does hold up, there’s no guarantee it will be coming from Australia. As we’ve written, China is 95% self-sufficient in coal and has been taking steps that might take that to 100%, to the consternation of some utilities which prefer cheaper product from overseas. Those measures to reduce dependence on imported carbon are political, to be sure, but they’re driven by long-standing objectives rather than the temperature of the latest diplomatic dispute. 

China’s trading relationships are far more driven by realpolitik than the heated rhetoric and fears of its partners would suggest. Relatively minor commodities like Australian barley or Norwegian salmon may become collateral damage in a diplomatic spat because China doesn’t suffer much when it abstains from them. Cutting off traditional “commanding heights” industries like coal, oil and iron ore, on the other hand, would be a near-suicidal move for a government that’s trying to use industrial stimulus to recover from the coronavirus pandemic.

Does that mean Australia can safely ignore this latest announcement? Not entirely. The country has grown rich on China’s appetite for iron ore and coal. But President Xi Jinping is now targeting net zero emissions by 2060, with massive renewables investment expected to be a centerpiece of the next five-year plan and even conventional carbon-intensive steelmaking facing challenges from a growing scrap mountain.

The world’s third-largest fossil fuels exporter, Australia faces a fundamental challenge to its economic model over the coming decades as the world decarbonizes. The latest upset isn’t going to kill off the coal trade overnight, but it’s a premonition of what’s to come as China’s leadership starts putting words into action. Australian coal is already trading at levels where miners will struggle to make a profit. There may be many more lean years to come.

(1) Coal and iron ore tend to duke it out for the title of Australia’s largest goods export by value. In calendar 2018, coal was in the lead.