What Does The US-China Trade War Mean For Australia?

What Does The US-China Trade War Mean For Australia?

If you dabble in the share market or are just generally up to date with world news, you are sure to have heard of the US-China trade wars that are currently dominating the global economy. 

What's Going On?

While many onlookers may assume that the trade war was caused solely by oversized egos and extreme nationalism, there are other factors at play. A trade deal between Chinese President Xi Jinping and US President Donald Trump in April 2017 allowed US firms in agriculture, energy, and other sectors increased access to China’s markets. After this, the US Trade Representative launched an investigation into potential Chinese counterfeit goods and pirated software, which they announced cost the US economy an average annual cost of $600 billion. Trump launched a series of tariffs, investments, and penalties against China as a result, in addition to filing a case against China at the World Trade Organisation. After this, both countries retaliated through stricter and stricter tariffs, with trade talks hosted in Beijing in 2018 not proving conclusive to finding a peaceful solution. Despite a short truce of several months at the end of 2018, there are currently “a total of $250 billion US tariffs exclusively applied to Chinese goods, and a total of $110 billion Chinese tariffs exclusively applied to US goods”.

What Does This Mean For Australia?

There are potential benefits to Australia, including becoming an affordable alternative in the import market for both US and China. Currently, China and Hongkong are responsible for 40 percent of Australia’s fruit and nut experts, and this figure only stands to grow across numerous industries as US imports grow more expensive.

Australia has an opportunity to expand in the rare earth minerals industry, which are a key component to mobile phones. Whereas China currently holds 90% of rare earth processing capacity, Australia is expanding its project selection with difficulties previously arising from funding due to China’s dominance. Both China and the US heavily rely on coal for steel production, and Australia has rapidly gained a competitive advantage in this supply chain.

However, many experts are concerned that the trade war is a major threat to the Australian economy, with the ASX down by $50 billion. While many consumers and online shoppers like myself are frustrated with the large depreciation of the Australian dollar, this is providing an additional boost to Australian businesses who are exporting an increase number of commodities at a more competitive price.

How Will This All End?

As anybody who has taken Introductory Microeconomics knows, a trade war means rising tariffs, meaning higher prices, and all-round negative impacts for the global interconnected economy. Even the American farmers who are the backbone of Trump’s supporters are complaining about how the tariffs are putting them out of business as their products become too expensive for their export market.

Nervous investors in the global share market are preparing themselves for an extended period of uncertainty, with industry experts unsure of how the trade war will end. China has devaluated its currency to its lowest level in more than a decade in the hopes of cheapening their exports to offset the tariffs.

If other countries fall victim to the fear mongering resulting from this trade war and implement their own severe protectionist policies, there is a risk that global trade will fall to a lower level than that during the GFC in 2007. But on the other hand, if the remaining economies, Australia included, stay calm and continue on with business as usual without a change in trade policy, they will minimise risks from US-China conflict and potentially even grow in size due to increased competitiveness and trade if the two global superpowers fight till the end. 

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