Here's one way Australia could benefit from a US-China trade war

China Sinopec’s new Tianjin terminal receives its first LNG cargo from Australia. (VCG via Getty Images)
  • China included a 25% tariff on LNG imports in its latest trade threat against the US.
  • Capital Economics said Australia’s LNG producers could benefit from a redirection of demand.
  • The short-term benefit is likely to be small, but there’s an opportunity to gain market share over the next five or ten years.

Australian LNG producers could stand to benefit over the long-term, if rising global trade tensions result in the permanent establishment of protectionist trade barriers.

Global markets remain on edge as US-China trade tensions show no signs of abating.

On Friday, China threatened to implement new tariffs on $US60 billion worth of US goods, after US President Trump raised the prospect of further tariff hikes earlier in the week.

Interestingly for Australia though, China included LNG on the list — applying a 25% tariff on all LNG imports from the US.

According to Paul Dales at Capital Economics, that presents an opportunity for Australian LNG producers to gain more market share.

Just not straight away, though.

“Unfortunately, any boost to GDP growth from China buying LNG from Australia instead of from the US will be small,” Dales said.

“The long delay between investment and production means exports aren’t very responsive to shifts in demand.”

In addition, the long-term contracts signed by gas producers mean it’s hard to initiate rapid shifts in output.

Dales also noted that China’s LNG imports from the US are small — just 1.5 million tonnes in 2017 — so there isn’t a whole lot of demand to shift across.

Still, Dales said China’s latest trade salvo “raises the chances” that Australian GDP will continue to get a handy boost from LNG exports over the next few years.

Capital Economics

As a small, open economy, most analysts are of the view that an extended trade war would not bode well for Australia’s growth prospects.

But according to government data from earlier this year, Australia is on track to become the world’s biggest exporter of natural gas.

And if the ongoing tensions result in a new protectionist global trade paradigm, Dales said it could present an opportunity for Australian gas producers.

“The boost to Australia could be bigger over the next five to ten years, as the opportunity of grabbing a larger share of China’s growing LNG market may prompt Australian producers to expand capacity and output,” Dales said.

“That could help mitigate the long-term hit to Australia from a rise in global trade barriers.”

Dales added that in the short-term, trade war fears have put downward pressure on the Aussie dollar which has helped make Australian exports more competitive.

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