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Our very own Dominic Wilson-Ing has kept his eye on the US-China Trade War and has brought us an important update on the impact of the war for Australia.
Six weeks ago, I discussed the potential impact of the US-China Trade War that had recently commenced. In that article, it was noted that at the time the beliefs of the impact were dichotomous. Some sources suggested that Australia would benefit due to weaker international competition whereas others were predicting an economic downturn. It is prudent to revisit this topic to assess which of the predictions is most likely to be correct, especially as we are starting to see impacts six weeks on.
Following on from the US confirming tariffs on a further $2 billion worth of China’s imports, the stock-market reacted with a result (12 July 18) that ended with the Dow Jones tumbled by 210 points, the S&P closing 0.7% lower and the Nasdaq down by 0.6%. European markets (Paris, London and Frankfurt) lost between 1.3 and 1.5% each. The Australian dollar fell by 1.2% to the US dollar and commodity markets were also affected [1].
China may respond to an ongoing situation by increasing export to other countries and therefore decreasing its reliance on goods it imports from the US. However, if the Trade War continues and expands due to the US and China sanctioning other countries this mitigation strategy will fail and all countries will lose out. An additional flow-on effect of a prolonged or heightened trade-war between the two countries is the impact on investment. Banks and other investors are less likely to want to risk funding companies that produce goods that are affected by the levies, due to the potential loss in customers as tariffs are passed through to consumers. This subsequently will affect consumer demand and confidence as prices for goods incrementally rise [2]. As discussed in the previous article, much of this impact arises from the supply chain being reliant on components imported from China or other countries.
To avoid negative impacts for as long as possible whilst hoping for an end to the Trade War, it is likely that several countries will start negotiations to allow direct import and export. The United Kingdom is a case in point as it tries to negotiate the best deal as part of leaving the EU. Australia may benefit from this due to longstanding relationships, but this will be dependent on the terms and conditions agreed prior to next March [3].
In conclusion, it appears that there is little benefit to Australia from a prolonged US-China Trade War, or indeed to any country, including those who have initiated it. There may be some mid-term benefits if Australia can negotiate trade with other countries, however, if the Trade War continues and sanctions start to be applied to other countries, then this benefit will quickly cease. To minimise this impact in individual organisations, it is becoming more important that efficient and sustainable processes are developed so that waste is minimised, operating costs reduced to a minimum and production maximised with the least resource.
We provide several services across different industries, so if you are concerned on how the US-China Trade War is going to affect your business and want to minimise this impact, or if you are interested in talking to us about what we do and how we can help you, please check out our website, the resources there and contact our friendly team.
Footnotes:
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