How Australia Could Benefit from a Trade War

It seems that all anyone can talk about — or write about — is the trade ‘war’ brewing between the US and China.

Chinese President Xi Jinping eased a lot of fears on Tuesday, announcing he would open up market access to foreign companies in China. But both the US and China have put tariffs on imports.

So how does this affect Australia?

Well at first we were all a little worried about our own markets. And how we would suffer from a tug of war between our greatest ally and largest exporter.

But while there may be some losers regarding trade exports from Australia, surprisingly, there will also be some winners.

As previously stated, China is Australia’s largest trade partner. And the US is Australia’s third largest (with Japan coming in second).

The US is Australia’s biggest foreign investor. China comes in seventh spot.

So Australia could potentially have trade wins from both nations, if tensions increase between the two.

And according to IBISWorld senior Analyst, Jason Aravanis, as reported by Business Insider:

Australia is one of the best-placed countries in the world to reap the gains of a trade war, due to our natural advantage of having ease of access to maritime trading with both major economies

In addition, Australia has beneficial bilateral free trade agreements with both China and the US, which provide more stability to international trade.’

Due to China’s tariffs on US food products, Australia’s agricultural sector looks to benefit. With products such as grain, wine, fruit and even pork.

And while Business Insider reports that there will be competition in the market with nations ‘such as Canada, Brazil, and the European Union’.

That doesn’t mean that Australia can’t profit from exporting in other sectors to the US. As Aravanis states:

As the United States has imposed a 25% tariff on steel and 10% tariff on aluminium from China, the Australian Black Coal Mining and Aluminium Smelting industries may experience greater demand from US clients

In addition, US tariffs on Chinese chemicals, medicinal products, and electronic components are likely to create opportunities for Australian firms.’

And while this is all great news, that doesn’t mean there won’t be losers.

If there is a slowdown in China’s economic growth, then Australia’s mining sector looks set to suffer. 

And if there is a slowdown in either, or both, causing GDP to fall, then Australia could see fewer tourists.

As Aravanis states:

On a macro-economic scale, a downturn in either Chinese or US GDP growth is highly likely to undermine the growth of Australia’s GDP.

This could lead to an increase in unemployment, as well as a sustained hit to business confidence as the stability of trade liberalisation in undermined.’

So there are both advantages and disadvantages for Australia from a potential trade war breaking out.

And while fears have eased in this past week. It’s always good to be prepared, just in case.

And Vern Gowdie, Editor of The Gowdie Letter here at Port Phillip Publishing, has some advice.

Vern’s strategy includes being ‘…fearful when others are greedy.’ And being ‘…greedy when others are fearful.’

But he understands that every strategy is different. He believes:

The important thing is to identify and evaluate the risks. If you do this correctly, the rewards will take care of themselves.

Far too many people focus on the upside — the juicy return on offer — not realising the potential cost that comes with that few extra percent. This is why I prefer to err on the side of caution.’

In times of volatility, as Vern explains, it’s best to be safe to protect your wealth.

If you want to learn more about how to potentially protect you wealth due to the increasing volatility from the markets. And the prospect of a trade war escalating between the US and China, then check out Vern Gowdie’s The Gowdie Letter here.

This Week in Money Morning

In Monday’s Money Morning, Harje looked at the legitimacy of trade and how the tension the trade tariff back and forth was brewing between the US and China. But as Harje explains, it’s not the actual tariffs that are most concerning, but how it’ll affect the whole economy. To find out how these trade tariffs could affect the economy, stock markets and your wealth, go here.

In Tuesday’s Money Morning, Harje discusses the stock market and how it handles uncertainty. Stock market uncertainty can be used as a guide to explain the trade to and fro between the US and China. However, with the trade war on hold for the time being, Harje looks at how the stock market will be affected. To find out more, click here.

On Wednesday, Harje delved into how China may be beating the US and the West at their own game. Previously, China would copy the innovative ideas coming from the West. However now, as Harje explains, China are becoming increasingly more innovative, and may not need to rely on the West for ideas. To read more about China and their innovations in tech, go here.

In Thursday’s Money Morning, Harje considers that we may have to say farewell to rising stocks. As it’s been roughly 10 years since the GFC, Harje believes that the markets could be at the end of their bull run. And with the market having shown volatility in 2018 thus far, the outlook doesn’t look all that optimistic. To find out more about where Harje believes the markets are going, go here.

On Friday, Harje began his Extreme Small-Cap Profits. This course will be done over the next 12 business days. On day one he introduced you to small-caps, and the returns a few small-cap stocks on the ASX could make. To find out more about small-cap stocks and how by just backing one you could benefit, go here.

Kinds 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 Fat Tail Investment Research’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 Fat Tail Investment Research’s political publication, The Australian Tribune.

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