Trade war talk escalates risk
AUSTRALIA could be forced to choose between trading with the United States or China, as Donald Trump’s trade war threatens to escalate into a Cold War.
Market observers made the comment after the announcement by China last week it would impose tariffs of up to 25 per cent on hundreds of US imports.
China made the call in retaliation to US President Donald Trump’s decision last month to impose up to $60 billion worth of trade tariffs on Chinese exports to the US.
Rabobank’s head of financial markets research in the Asia-Pacific, Michael Every, warned the current situation could be “incredibly serious” for global trade.
“If it escalates into a fullblown Cold War then everyone will be forced to take sides,” Mr Every said.
Mr Every said the global risk could now be political or ideological, not just economic.
“The US no longer feels it gets what it deserves from the global system, while China is seen, accurately, as getting far too much,” Mr Every said.
Rabobank food and agri research general manager Tim Hunt said it was likely Australian exporters could win from a trade war in the short term, by filling the void of US exports into China, and the weaker Australian dollar.
“We’re already seeing the impact on the Australian dollar, which has fallen US1c over the last month,” Mr Hunt said. He said Australian trade officials were quickly trying to open new markets.
“We send more than 20 per cent of agricultural exports to China – it is a great market but we need diversity – it has been more than 25 years since we’ve had that kind of exposure to just one country,” said Mr Hunt, referring to trade with Japan.
He warned that if the tariffs proposed by the US and China were acted on, it could have a detrimental effect for years.
“Worst-case scenario, we could be asked to toe the line with one side,” Mr Hunt said.
Mercado analyst Andrew Whitelaw said China’s tariffs could affect up to $50 billion worth of trade.