While economists have been wringing their hands over the US-China trade war and the dangers of escalation, a resolution to it could hurt Australian farmers even more.
When the trade war kicked off last year, spurred by disagreements over trade and intellectual policy (IP), the implications were stark.
For every 25 per cent of tariffs US and China level at each other, KPMG Australia chief economist Brendan Rynne forecast that 0.5 per cent would be wiped off Australia’s GDP.
If other countries were to join in with 15 per cent tariffs, the global economy would contract painfully by 3 per cent, KPMG estimated.
However, with a ceasefire announced late last year and as speculation mounts that current negotiations may produce a resolution, another scenario has arisen.
American and Chinese trade representatives, in hammering out a deal palatable to both parties, will likely make concessions that could hurt Australian exports.
“If China says it is going to increase its trade with the US at the expense of trade with another country then certainly that other country could be a loser in that situation,” Rynne told Trading Day.
“The only scenario where a ‘win’ occurs is one where that trade actually expands and the consumption inside China increases as a response to the increase in trade,” he said.
“The Chinese government recognises it needs to appease President Trump and in that process…you will see them committing to more imports from the US.”
While by and large there isn’t too much crossover in terms of agricultural products that Australia and the US import to China, there are a few key areas of competition.
“One is particularly beef, and the beef industry in Australia has had a major share of the Chinese market for the last few years, [although] it’s fallen back a bit due to South American competition,” ANZ head of agribusiness insights Michael Whitehead said.
While US beef was locked out of the Chinese market for 14 years, it has now been allowed back in, meaning a trade concession could take a bite out of Australian exports.
Another area is wine, although Whitehead maintains that the Australian reputation there would make it difficult for American competitors.
“The average Australian bottle of wine costs more than the average bottle of French wine sold in China and the Chinese are willing to pay it because of our reputation for quality,”
“[But] more US wine may be let in and [people] encouraged to buy.”
That’s not to forget Australia’s smaller agribusiness exports, such as almonds and macadamia nuts.
“While those operations are small on a global scale, they’re quite significant at a small regional level so if there’s some disruption to those… that then is certainly going to have a large effect in regional and rural Australia,” Rynne said.
Those competitive challenges aside, however, a growing Chinese middle-class and the continuation of free trade between countries would prove a better outcome than a long and bloody trade war.
Likewise, Rynne said that the odd example of China throwing its weight around- such as last week’s supposed ban of Australian coal– were relatively small prices to pay for a big economic payoff.
“We need to remain open to China occasionally stopping exports or occasionally sending a message back like they did with our beef for six weeks last year,” he said.
Watch the full panel discussion above.