How U.S. Tariffs on China Could Affect Australia
With the Trump administration’s potential move to introduce sweeping tariffs on Chinese imports, Australia faces complex challenges in navigating the ripple effects of these trade policies. Experts from the UNSW Business School have warned of significant repercussions for Australia, urging swift action to protect its interests in an increasingly precarious global trade environment.
Professor Richard Holden from UNSW Business School cautions that U.S. tariffs could trigger a domino effect, leading to retaliatory tariffs from other major economies. “If Trump goes ahead with across-the-board tariffs or very significant tariffs on China, that could easily usher in retaliatory tariffs and an era of deglobalisation,” Holden explained. Such a shift could adversely impact not only the U.S. economy but also global markets, particularly affecting Australia’s key export relationships.
Should retaliatory tariffs emerge from China or the European Union, Australian exports could suffer significant setbacks. China, a major Australian trading partner, might view Australia as aligned with U.S. policies, potentially imposing punitive tariffs on Australian goods in response. As Holden highlights, “China might do the same thing and say, ‘Well, if the U.S. is going to impose big tariffs on Australia, which is a military and security ally of the U.S., then we’ll have big tariffs on Australia.’ That would be really bad for all of our exports.”
A slowdown in China’s economic demand, fueled by tariff-related pressures, could also directly impact Australian industries dependent on Chinese demand for raw materials. If China’s economy experiences a downturn, as Holden notes, the demand for Australian iron ore and coal would diminish sharply, creating substantial export losses. “If that’s the case, then they won’t need as much steel… and that means they won’t need as much Australian coal,” he adds, outlining a scenario that could lead to a considerable economic hit for Australia.
Professor Petr Sedlacek also warns that even without direct tariffs on Australian goods, the negative impact on China’s economy could indirectly affect Australia. “This is because the planned import tariffs have China in particular in their sights,” Sedlacek explains. Reduced Chinese economic performance could cascade into lost market opportunities for Australian businesses.
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Pursuing a Tariff Exemption
A proactive response by the Australian government could help mitigate these risks. Holden believes that lobbying for an exemption is crucial, suggesting that Joe Hockey, Australia’s former ambassador to the U.S., and Kevin Rudd, the current ambassador, form a strong team to negotiate with U.S. policymakers. “Hockey is a kind of a golf buddy of Trump’s, and Rudd is obviously the Ambassador – and a noted China Hawk,” he points out, emphasizing the unusual but potentially advantageous dynamic these two figures bring to the table.
Despite these efforts, Holden notes that Australia’s limited leverage on the global stage could restrict its influence in any negotiations, as the primary discussions will occur between leaders such as Trump, Xi Jinping, and Vladimir Putin. “Australia is not going to have an important seat at the table,” Holden says, emphasizing the challenge Australia faces as a smaller player amidst large-scale negotiations.
Adapting Markets and Business Strategies
For Australian businesses, resilience and adaptability will be key strategies in facing an unpredictable trade landscape. Holden urges companies to prepare for a more self-sufficient economy by focusing on robust business models and diversification. “We want to make our economy as robust and resilient as we can,” he advises, noting that quick adaptation will yield benefits in the face of uncertain trade policies.
Sedlacek shares Holden’s sentiments, suggesting that while initial economic shocks may be severe, competitive pressures could eventually lead businesses to new markets and trading relationships. As he notes, “The short-term impact may be particularly painful. But competitive pressures and substitution are powerful forces.” Europe’s response to the disruption of Russian gas, he says, exemplifies how economies can adjust to sudden changes in trade conditions.
Lessons from the Trump Administration’s First Term
Reflecting on Trump’s economic approach, Sedlacek also discusses the “Trump effect” on the U.S. economy during the former president’s first term. Despite Trump’s claims of overseeing the “greatest economy, maybe, ever,” a closer analysis reveals little difference in economic performance between his administration and a hypothetical “doppelganger” economy in which Trump had not been elected. By comparing the U.S. economy to a composite of similar OECD economies, Sedlacek found no substantial variation in key indicators such as GDP growth or employment.
“It is then possible to compare the evolution of the U.S. economy since the election with that of the doppelganger, as if Trump had not been elected,” Sedlacek explains. His analysis showed that U.S. economic growth and employment metrics were almost indistinguishable from the doppelganger model. “The result of this analysis shows no evidence of a Trump effect.”
As the Trump administration considers implementing substantial tariffs, Australian leaders and businesses must prepare for the potential economic shocks. Whether or not Australia secures a tariff exemption, this evolving trade landscape serves as a reminder of the need for economic resilience and adaptability in a globalized, yet increasingly fragmented, world economy.
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