Some Australian industries could do very well from a trade war between the US and China

China’s Premier Li Keqiang (R) speaks to a waiter about the wine during a luncheon with Prime Minister Malcolm Turnbull in Canberra in 2017. Mark Graham/AFP/Getty Images
  • Australia’s agricultural sector is likely to be one of the biggest winners in a US-China trade war.
  • China is Australia’s largest two-way trading partner, making up 17.7% of imports into Australia and 29.6% of Australian exports.
  • The US is Australia’s third largest trading partner, after Japan.

Some Australian products, including pork, wine, grain and fruit, could benefit from an escalating trade war between the US and China.

Analysts IBISWorld says some local industries are more exposed to risk but others might actually increase export market share in both the US and China.

“Australia is one of the best-placed countries in the world to reap the gains of a trade war, due to our natural advantage of having ease of access to maritime trading with both major economies,” says Jason Aravanis, Senior Analyst at IBISWorld.

“In addition, Australia has beneficial bilateral free trade agreements with both China and the US, which provide more stability to international trade.”

Equity markets dropped sharply early last week after the US and China exchanged tit-for-tat announcements of plans for tariffs on hundreds on billions of dollars of goods.

China is Australia’s largest two-way trading partner, accounting for 17.7% of all imports into Australia and 29.6% of Australian exports in 2016-17.

The US is Australia’s third largest trading partner, after Japan. However, the United States is the largest foreign investor in Australia, with $860 billion invested in 2016. China is only the seventh largest investor in Australia.

Winners

“The Australian agricultural sector is likely to be one of the largest winners, as China has enacted tariffs on popular US food products,” says Aravanis.

In 2017-18, China is expected to account for 25.1% of export demand in the Australian Wine Production industry, and this is forecast to grow in response to a 15% tariff imposed on US wines this month.

A 25% Chinese tariff on US soybeans will create opportunities for the Australian Grain Growing industry. China consumes about two-thirds of global soybean production.

Rising demand for premium meats in Chinese households has led to strong growth in Australia’s Meat Processing industry. This industry’s performance is expected to improve following a 25% tariff imposed by China on US meats.

Other Australian agricultural industries are also likely to benefit, including fruit and seed industries.

According to IBISWorld, some Australian industries also have the opportunity to gain market share in the US.

However, Australian exports are likely to encounter greater competition from other countries in this market, such as Canada, Brazil, and the European Union.

“As the United States has imposed a 25% tariff on steel and 10% tariff on aluminium from China, the Australian Black Coal Mining and Aluminium Smelting industries may experience greater demand from US clients,” says Aravanis.

“In addition, US tariffs on Chinese chemicals, medicinal products, and electronic components are likely to create opportunities for Australian firms.”

Losers

Some industries won’t do so well.

IBISWorld says major mining industries such as the iron ore could be affected by a slowdown in Chinese economic growth, which would lead to lower export prices and demand.

Tourism in Australia could also suffer if consumer confidence is weak in both China and the US.

“On a macro-economic scale, a downturn in either Chinese or US GDP growth is highly likely to undermine the growth of Australia’s GDP,” says Aravanis.

“This could lead to an increase in unemployment, as well as a sustained hit to business confidence as the stability of trade liberalisation in undermined.”

The tariffs imposed by China and the US:

Image: IBISWorld

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