Australia is a country that stand to lose a lot from a potential trade war between the United States and China. And the way the two largest economies of the world are threatening with tariffs and counter tariffs, there appears to be no end in sight for the trade spat and a real possibility of its ballooning into a g\full blown trade war.
The Australian economy is driven by its exports – and China is a very important export destination for a large number of industries of the country accounting for about one third of the total exports from Australia every year.
“Australia’s success has largely depended on the rest of the world,” said Paul Dales, a Sydney-based economist at research firm Capital Economics. “It’s a small, open economy that gets pushed and pulled around.”
There has been no recession in Australia for more than 25 years now and according to analysts China has a major role to play in that.
Huge demand for goods in China – ranging from iron ore and copper to milk and wine has benefitted resource-rich Australia. Chinese visitors to Australia also form the backbone of its tourism and airline industry.
The profits of mining giants like BHP Billiton and Rio Tinto have bene boosted by demand from China.
However, there are concerns mounting currently. Since the end of January, there has been a 10% drop in the Australian dollar against its US counterpart. This has partly accounted for fears over a lowering of demand for Australian goods because of an escalating trade war.
For example, the iron ore mining industry in Australia could suffer because of the US tariffs on Chinese steel which will reduce the export Chinese steel to the US and consequently demand for Australian iron ore.
This has been compounded by a slowdown in the Chinese economy impacting the prices of key Australian exports such as iron ore and copper.
One of the largest economic risks for Australia is “something going wrong in China”, warned the Australia’s central bank governor.
There can however be some benefit for Australia from the US-China trade clash. If Beijing puts in retaliatory tariffs on US such as fruit and natural gas, the void in China can be filled in by Australian supplies. But there isn’t much evidence of this happening yet, Dales said.
For the Australian government, it is a catch 22 situation because it can neither upset the US nor China by taking any side sin the trade war.
“They have to try and keep both sides happy,” Dales said.
The value of goods exported by Australia to China is six times that of the goods exported to the US. But the Australian economy is very reliant on the American funds and investments by American companies.
And over the last year, there has bene some chill in the relations between the Australian and Chinese governments. A law was enacted by the Australian parliament in June aimed at eliminating foreign intervention in Australian politics. But China has alleged that it has been wrongly singled out by Australia.
“What we are seeing is cooperation being shut down,” said James Laurenceson, an expert in China-Australia relations at University of Technology in Sydney.
(Adapted from Money.CNN.com)