Trade is becoming less of a driver for China's economy

US president Donald Trump has commented about what he sees as China’s “unfair” trade practices and their impact on the US economy.

The RBA has also commented on this topic in its recent quarterly statement on monetary policy. The RBA noted that “trade relations have been a key policy focus for the current US administration. It has begun renegotiating a number of trade agreements and more recently has increased import tariffs on certain items”.

The RBA raised concerns that with the introduction of higher tariffs, “over the longer term, it is likely that productivity growth would be lower than otherwise, as global economic activity shifts to less productive domestically focussed sectors and reduced competition across borders weakens incentives to innovate and invest”.

Research by S&P Global Ratings shows that China has in fact been having a lesser impact on global trade in recent years. S&P Global Ratings Chief Economist Paul Gruenwald highlighted in a recent presentation that China’s current account surplus is actually modest compared to some other major economies.

S&P Global Ratings

Australia has a relatively small trade relationship with the US. Our key export markets are in Asia and particularly China. Neighbouring countries, Canada and Mexico, have by far the largest trading relationship with the US.

Importantly for Australia, we are benefitting from China’s transition to a more consumer driven economy. Our commodity exports remain strong, but, tourism has now overtaken coal as our second biggest export.

Australia also has a trade surplus with China. In 2016 Australian exports to China amounted to over $93 billion, whereas imports where just over $62 billion.

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