China-U.S. trade war can ben­e­fit Aus­tralia

Winnipeg Free Press - - TANK - GIO­VANNI DI LIETO

AUS­TRALIAN firms are in a sweet spot be­tween the bick­er­ing United States and China, where they can sell more and buy more cheaply be­cause of weaker com­pe­ti­tion in both mar­kets. Es­sen­tially, the mutual tar­iffs are a dou­ble bless­ing for Aus­tralia.

The lat­est es­ca­la­tion of the on­go­ing tar­iff war prom­ises to af­fect in­ter­na­tional trade ex­changes to the tune of US$101 bil­lion per year across a broad range of eco­nomic sec­tors, in­clud­ing met­als, drugs, mo­tor ve­hi­cles, elec­tronic com­po­nents, in­dus­trial ma­chin­ery and foods.

Aus­tralia is one of the best placed coun­tries in the world to reap the gains of the likely trade di­ver­sions. For ex­am­ple, Aus­tralian beef pro­duc­ers will be much more com­pet­i­tive in ex­port­ing to China as their Amer­i­can com­peti­tors have to grap­ple with the 25 per cent tar­iff on their beef. On the other side, as China raises tar­iffs on soy­beans, Aus­tralia could buy this prod­uct more cheaply from

U.S. farm­ers keen to find new dis­tri­bu­tion chan­nels.

And the same goes for all other prod­ucts ap­pear­ing in the U.S. and Chi­nese hit lists on both the ex­port and im­port sides of mar­kets.

Aus­tralia’s main com­peti­tors for this dou­ble mar­ket grab are just a hand­ful of highly de­vel­oped economies with size­able com­mer­cial ties with both the U.S. and China. These in­clude Canada, the EU, Japan and South Korea.

But in com­par­i­son with these trad­ing com­peti­tors, Aus­tralia has a nat­u­ral ad­van­tage due to the ease of ac­cess to mar­itime routes right across the Asia Pa­cific re­gion.

While Europe is also in be­tween the Amer­i­can and Asian con­ti­nents, its over­land trad­ing routes are far less de­vel­oped than the mar­itime ones and are also clogged by hos­tile coun­tries such as Rus­sia, Turkey, Iran, Pak­istan and In­dia.

Canada is also at a dis­ad­van­tage to Aus­tralia be­cause of its more em­bed­ded econ­omy and sup­ply chains with the US. The chal­leng­ing rene­go­ti­a­tion of the North Amer­ica Free Trade Agree­ment with the U.S. and Mex­ico could also stunt Canada’s range of trad­ing ac­tion.

Sim­i­larly across the Pa­cific, Japan and South Korea share Canada’s tricky po­si­tion as they are too close to their pow­er­ful neigh­bour, in this case China. Not to men­tion that South Korea is also un­der in­tense geopo­lit­i­cal pres­sure from U.S. Pres­i­dent Don­ald Trump to rene­go­ti­ate its ad­van­ta­geous bi­lat­eral free trade agree­ment with the U.S.

Aus­tralia doesn’t pose a di­rect strate­gic threat to ei­ther China or the U.S., as its econ­omy and mil­i­tary power is not too big. And it’s not so small that it can be eas­ily trumped. Also, its lo­ca­tion is not too close, yet not too far from any of the ma­jor con­tenders for pri­macy in the Asia Pa­cific re­gion.

Aus­tralia has skin in the game but not to an in­dis­pens­able de­gree. More im­por­tant still, Aus­tralia has solid and mu­tu­ally ben­e­fi­cial bi­lat­eral free trade agree­ments with both China and the U.S., which gives more pre­dictabil­ity to the coun­try’s trade and in­vest­ment flows.

In fact, as the Aus­tralian trade min­is­ter, Steve Ciobo, re­marked, Aus­tralia is rel­a­tively safe from any re­tal­ia­tory ac­tion from the Trump ad­min­is­tra­tion thanks to a neg­a­tive trade bal­ance with the U.S.

On top of that, in terms of for­eign di­rect in­vest­ment Aus­tralia has am­ple room and need to di­ver­sify its over-re­liance on U.S. money. Of­fi­cial data show the U.S. tops the list of for­eign in­vest­ment in Aus­tralia with 27 per cent of total value by coun­try, which is a level 10 times big­ger than Chi­nese in­vest­ments. On the other hand, Aus­tralian cap­i­tal mostly flows out to the U.S. (28 per cent of total value) and not very much to China (only four per cent).

Deeper in­vest­ment ties with China will make an in­creas­ing neg­a­tive trade bal­ance with Aus­tralia more ac­cept­able to China over the long term.

Also this dy­namic places Aus­tralia’s econ­omy in pole po­si­tion to take ad­van­tage of the im­prov­ing qual­ity of Chi­nese fi­nan­cial mar­kets. This is ev­i­dent in the on­go­ing re­bal­ance of the Chi­nese econ­omy, as it moves to­wards more re­liance on grow­ing con­sumer de­mand and away from in­ef­fi­cient, debt­fu­elled in­vest­ment.

The U.S.-China trade war gives Aus­tralia the un­prece­dented chance to ex­pand its eco­nomic foot­print in the geopo­lit­i­cal agen­das of both global su­per­pow­ers.

At such un­cer­tain times, even more than pure eco­nomic profit, this strate­gic im­prove­ment will be the sweet­est fruit for “the lucky coun­try.”

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