Trade War Firestorm More of an Ember

Not many people are partial to the threat of a war…even if it’s only a trade war.

Australia was declared exempt from the 25% aluminium and 10% steel tariffs imposed by US President Donald Trump on 8 March 2018.

China was not.

And they were hit with the threat of a US$60 billion tariff on tech.

China looked to retaliate, with its own US$3 billion tariff on pork, soy, fruits, nuts, and, taking a leaf out of the US’ book, steel.

That means that the Aussie market could potentially see quite a bit of volatility while this all plays out.

In fact, it’s already happening. We saw a slump in the markets towards the end of last week, and then a surge at the beginning of this week. Tuesday US time saw tech stocks, such as Neflix, fall on a report that Trump will hit Chinese companies investing in tech, hard.

So what would a trade war mean for Australia?

Well, the director of the East Asian bureau of economic research at ANU, Dr Shiro Armstrong, told the Sydney Morning Herald:

…things [could] deteriorate, that is when Australia should be really worried about the health of the whole global trading system’.

Prime Minister Malcom Turnbull has commented on the situation, but has remained neutral. As published in the Sydney Morning Herald:

His contention is that trade should be fair and reciprocal. We understand that. That is the reason why Australia has been exempted from the steel tariffs … We look forward to the US and China to being able to negotiate a satisfactory arrangement that suits both sides’.

Since then, the threat of a trade war between the US and China has diminished. It’s interesting to note that Trump’s continued threats seem to have forced China’s hand. The US President delivered the bluster and threats, with Chinese President Xi Jinping’s government responding firmly. It was down to calmer, less public figures to actually sit down and talk.

On Monday, Chinese State Council Premier Li Keqiang called for trade talks between the two nations, instead of a trade war:

With regard to trade imbalances, China and the United States should adopt a pragmatic and rational attitude, promote balancing through expansion of trade, and stick to negotiations to resolve differences and friction’.

After last week’s spars, US Treasury Secretary Steven Mnuchin is confident of an optimistic outcome. He told Fox News on Sunday:

We’re having very productive conversations with them

I’m cautiously hopeful we reach an agreement.’

Now that the threat of a US–China trade war is receding, Australia can turn its attention to more positive developments. The Australian government is hinting towards trade talks with Britain.

Now, the Brits are still determined to go through with Brexit. Whether Brexit eventuates or not is a different story. However, Australia want to be on the front foot when it comes free trade with the UK.

Britain is set to officially divorce from the EU as of 29 March 2019. However, they cannot negotiate trade deals with anyone except for the EU until after this date. After 29 March they can start to negotiate trade deals outside of the EU.

But that hasn’t stopped our Trade Minister Steve Ciobo from announcing his intentions to seek trade deals with Britain as soon as possible…to go into effect 1 January 2021, after the set two year transition period agreed to by the UK and EU.

As reported by SBS, Mr Ciobo said in a speech in London:

Australia is committed to helping the United Kingdom define its trade policy and emerge as a great new liberal voice in the international trading system’.

And while Ciobo believes there will be some economic pain as a result of the split from the EU and Britain negotiating and renegotiating free trade agreements, it will be for the benefit of the UK in the future. 

Trade negotiations between Australia and Britain shouldn’t reflect on the markets the way that the trade war threats between China and the US did.

But you never know how the markets will react in the final phases of Brexit. As we saw in 2016 when the UK voted for Brexit, there was quite a bit of volatility in the markets, before they actually bounced back.

The threat of chaos in international trade has receded, for now. But the time to put measures in place to protect your wealth from disaster isn’t after it’s begun. It’s during the good times. If you’d like to learn more about protecting your hard-won wealth, you can read about Vern Gowdie’s five part wealth protection plan here.

This week in Money Morning

In Monday’s Money Morning, Harje looked at the brewing trade war between the US and China. While 2017 was quite a big year in international politics, it seems that 2018 is heating up to be on par over bigger than 2017. With the US imparting steel and aluminium tariffs, China looks set to retaliate with their own tariffs. To find out more about these impending tariffs and how they may affect not only the US, but Aussie markets too, click here.

On Tuesday, Harje discussed the difference between innovation and power. While countries such as the US, Japan, Israel and even Australia have land and produce innovations, a country like China, so vast and populated, has to rely on others for invention. But just because they don’t have their own ideas, doesn’t mean that can’t produce up and coming technologies. To read more about China and their place in the tech space, go here.

In Wednesday’s Money Morning, Harje looks to the future of cars. Specifically, electric vehicles (EVs). Tesla seem to be leading the pack when it comes to EVs, but they’re not the most reliable when it comes to dates. Often late, the company is running on their brand and the fact that other automotive companies are behind when it comes to EVs. But how long will that last? According to Harje, Toyota are nipping at the heels of Tesla. To find out more about the goings on in the EV space, click here.

On Thursday, Harje once again looked towards the future of EVs. This time Harje looked at charging stations within Australia. While EVs aren’t very popular in Australia just yet, that doesn’t mean companies shouldn’t start looking towards the future. Eventually, as Harje explains, more and more people will be driving EVs, and the demand for power charging stations across Australia will increase. To read more about the companies manufacturing and building the infrastructure for these stations, go here.

In Friday’s Money Morning, Harje discusses the concept of perfect investing. He looks to the idea that investors try and pick stocks that they think others will believe is, or will be, the most popular. While investors may think this will work when picking their stocks, it usually doesn’t. To find out what Harje believes is the trick to picking the right stocks for you, click here.

Kind Regards,

Alana Sumic,
Editor, Money Weekend

Alana Sumic is part of the editorial team here at Money Morning. She contributes to bringing you Money Morning each day, along with all of Port Phillip Publishing’s many other publications.

As the Editor of the weekend edition of Money Morning Alana brings you a summary of the news for the week, and her own take on the week’s most important story in markets. She is also a writer and editor for Port Phillip Publishing’s political publication, The Australian Tribune.

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