There’s a Silver (and Gold) Lining to the US/China Trade War Cloud

Australia might be a long way from the rest of the world, but the fact is a lot of the world relies on us.

We punch above our weight when it comes to exports.

I mean, how would anyone get by without Neighbours, Ugg boots or Tim Tams?

Wait — ‘Top 10 Most Famous Aussie Exports’ is probably not the real list I was looking for.

Vegemite and Kylie Minogue aside, let’s look at Australia’s actual riches: its resources.

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Source: ABC
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One glance at that list and you can see that we’re a mining haven.

What I find interesting, though, is that education-related travel services are up with the big guns like iron ore and coal.

It’s easy to forget once you’re in the workforce just how much wealth the universities bring in.

But it makes sense.

You simply can’t walk into an Australian campus — or even through our city centres — these days without seeing a sea of international faces.

But I’ll get back to that in a moment…

First, it’s important to review such a list from time to time. Particularly in the midst of the ongoing trade war between China and the US.

China is our largest export market. It accounted for more than 30% — $123.3 billion — of our exports in 2018.

That figure eclipses what Australia sells to Japan, South Korea, the United States and India combined ($117.4 billion).

That’s why this China–US trade spat is something you need to pay attention to.

There’s obviously a chance some of our biggest export industries might take a bit of a hit, especially our miners. And that’s something we need to prepare for.

But depending on how it plays out, there could be opportunities too.

Last year, analyst Jeremy Thorpe from PwC wrote:

PwC modelling reveals that the pattern of tariffs applied by China and the US, and our exemptions from US tariffs, will result in Australia benefiting from the US-China trade war to the tune of $1.7bn a year.

Whether this modelling gets it right or not is anyone’s guess.

But it’s an interesting angle to pursue.

Could the US–China trade war be good for Australia?

Watch These 10 Aussie Mining Stocks Go NUTS in 2019 (No. Eight Is A Ripper!)

How Australia could benefit from the US-China trade war

For every trade China shuns with the US is a trade they’ll likely entertain with someone else.

And that ‘someone else’ could very well be us.

Now let’s jump back to higher education, for example.

Again, it’s number three on our export list. We really couldn’t stand to see a mass exodus of dollars from this sector.

Chinese money has long been a blessing here, and as of March this year, we have nearly 600,000 who’ve crossed our shores to study with us.

And here’s where the US–China skirmish could actually benefit us.

Let me explain…

During a diplomatic tiff last year between Canada and Saudi Arabia after Ottawa condemned Saudi human rights policies, for instance, Riyadh dragged 7,000 college students from Canada.

And he sent them to other countries instead.

Similarly, Trump has tightened visa requirements for Chinese students, forcing them to look elsewhere for an extremely valuable English education.

And the pressure’s not only external.  China issued an official warning last week for Chinese students seeking to study in the US.

I’m hoping the penny has dropped for you — literally.

In 2018, Australia ranked third in the world for international students.

Could our education industry actually see a boost with the US falling down the rungs as a competitor?

Maybe, but we also have Britain to contend with.  A fifth of Chinese students chose the UK as their first choice destination, according to a recent report.

But Australia’s much closer to home, much more relatable for our Chinese neighbours in many ways.

Especially if friends or family have gone to study in our cities…and according to the 2019 Chinese Student Overseas Study Survey report, it’s a very popular choice.

The bottom line is that if less Chinese students feel compelled to study in the US, it only stands to reason that many of them could follow their mates Down Under.

Aussie leaders not backing down

The best way to escape the crossfire of the US/China trade war is to avoid taking sides.

We want cool heads to prevail,’ said Josh Frydenberg, treasurer of Australia, a few days ago.

Even Julia Gillard has come out of the woodwork to shun the conflict.

We are an ally of the United States of very long-standing. We are in a strong relationship with China in every sense — of course, in economic relationship, political and diplomatic relationship, people-to-people ties, education, the list goes on,’ she told CNBC’s Nancy Hungerford on Friday.

But while we might not actively support countries raising tariffs or imposing trade barriers, investors could certainly try to look at the positives of the situation while it lasts.

The G-20 summit is happening later this month, where it’s expected Trump and President Xi Jinping will have a chat. Whatever happens here could the change situation overnight.

Politics is an unpredictable world, and investors should take Frydenberg’s advice and keep their heads cool amid the media storms.

At the end of the day, China is by far Australia’s largest trading partner, contributing 194.6 billion of imports and exports.

Let’s not let playground disputes spoil the relationship.

Good investing,

Ryan Dinse,
Contributing Editor, Money Morning

FREE report: Why ‘Nano Metal’ could soon be Australia’s most valuable export. Click here to find out more.


Ryan Dinse is an Editor at Money Morning. He has worked in finance and investing for the past two decades as a financial planner, senior credit analyst, equity trader and fintech entrepreneur. With an academic background in economics, he believes that the key to making good investments is investing appropriately at each stage of the economic cycle. Different market conditions provide different opportunities. Ryan combines fundamental, technical and economic analysis with the goal of making sure you are in the right investments at the right time.  


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