Trump's latest China attack pushes Australia into 'Scenario 1' - where it could lose up to $36 billion

Mark Kolbe/Getty Images
  • Analysis by KPMG shows the latest moves in the US-China trade war could take $36 billion from the Australian economy.
  • US President Donald Trump’s latest tariffs on $US200 million of Chinese goods pushes Australia into Scenario 1 in the KPMG analysis.
  • And further damage to the Australian economy is just a few months away.

US President Donald Trump’s latest tariffs on $US200 million of Chinese goods could hit the Australian economy by $36 billion over next decade.

Analysis shows this latest move corresponds to Scenario 1 from by KPMG’s trade wars report last month which forecasts Australia’s GPD to dip by 0.3%.

But the worse situation of Scenario 2 is just three and a half months away because Trump says the tariffs will go up to 25% on January 1.

This scenario would see the Australian economy take a $58 billion hit, or a cut to GDP of 0.5%, over the next decade.

The latest tariffs, along with previous rounds on $US50 billion of Chinese goods and metal imports, will mean over half of all Chinese goods coming into the US are subject to the duties.

China’s Ministry of Commerce has promised to respond to Trump’s latest attack with tariffs on $US60 billion worth of US goods. This means that between 85% and 95% of American imports coming into China will be subject to a tariff from the trade war.

According to a senior administration official the duty levied on the incoming goods will be 10% when the measure goes into effect on September 24. The tariffs will then increase to 25% at the start of 2019. The delay is partly designed to give US businesses time to adjust their supply chains, the official said.

KPMG Australia’s paper “Trade Wars: There are no winners” shows further escalation to Scenario 3 would cut Australian national income by half a trillion dollars over 10 years, the equivalent of 40% of last year’s total household disposable income.

About 60,000 jobs would be lost, and real wages would be pushed down by $16 per week for the average worker.

The scenarios outlined in the KPMG analysis:

KPMG

In a full escalation, an all-out trade war, the US would go into recession with a cumulative loss of GDP of 4.6% over five years.

China wouldn’t fall into recession, but its economic growth rate would slow to just 4% and would stay below 5% for around five years — China’s worst economic growth performance in almost three decades.

But if the US-China trade war is confined to those two countries, and restricted to current announced measures, then the negative impact on the world economy would be kept to below -0.5% global GDP.

Australia’s GDP would be cut by 0.3% over five years, with a loss of $36 billion. The European Union and Japan will be affected less than Australia.

But if the trade war escalated to a 25% tariff on all goods traded between the US and China, both countries would end up with GDP 1% lower, but with China faring worse over time.

Australia’s GDP would be cut by 0.5%.

The paper builds on KPMG Australia’s previous report, “The Re-emergence of Protectionism”, released in April 2018, which looked at a hypothetical scenario of all countries participating in a trade war with tariffs increasing on current levels by 5% or 10% on either all manufactured goods or all tradeable goods.

This new study assesses what has happened since April.

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