A Donald Trump presidency could spark a bitter trade war between the US and China that would have a “dramatic” impact on Australia, including the real risk of recession.
It comes as China's economy faces worsening conditions due to the ongoing collapse of the property market, slowing growth and a drop in consumer spending.
More worrying is how heavily dependent Australia is on China – the world's second-largest economy – and any further shocks will be keenly felt there, experts say, especially with Mr Trump's tariff threats and “crazy” reliance on it as a trading partner. .
One of Mr. Trump's key economic policies is his plan to impose tariffs on imports from all countries.
China will be hit with a 60 percent tariff on imports, sparking fears of a trade war and higher costs.
Many might believe that the huge Chinese tariff that Trump plans to impose on the country will have nothing to do with Australia, but that is not the case, The Australia Institute's chief economist Greg Jericho said.
“It may not seem like it will hurt Australia because Chinese imports are getting a 60 per cent tariff, which would hurt the Chinese economy, but it will affect exports to China,” he told news.com.au.
“If there is a major trade war, we would not be able to find other markets to take our minerals to offset the decline in demand in China.
“It would certainly be something that the government and the Reserve Bank would bear in mind and I would suggest doing a lot of diplomacy and getting ready if Trump wins to try and avoid any tariff increase because that would certainly affect us.” quite fast.”
Resistance against China
China is also not immune to the wider impacts happening internationally and affecting economies, including the disruption of war in Ukraine and the Middle East, but its move to become an even bigger global player is also reversing, according to the founder and director of Strategic Analysis Australia. Michael Shoebridge.
“Part of this is China's policy of wanting to be less dependent on other economies and make other economies more dependent on it, but this is more difficult to implement and is causing a growing backlash in Europe, the US and other democratic economies. ” he said.
Trump's massive tariff plan is an obvious response, but it's also evident in the electric vehicle inquiries underway in Europe as they probe China's moves to “kill the local industry.”
But it's not just the tariffs that are sounding the alarm, as China's economy is beset by problems including a significant slowdown.
“I think there are certainly concerns that growth is slowing to levels that are lower than would signal a healthy economy, and that's worrying and obviously has implications for Australians given our dependence on China for iron ore exports, lithium and coal. ” said Dr. Jericho.
“These are things that China will want less of, and if their economy slows down, that will certainly have an impact on the Australian economy.”
Chinese President Xi Jinping is also responsible for the “mess” of the economy, especially when
According to Mr Shoebridge, the “too powerful authoritarians” cannot admit that there was “any failure and his plan to continue what he is already doing which has led to these problems”.
He said that includes curbs on China's technology sector to prevent it from growing in Western markets, China's real estate and construction woes and an export war.
“No one can tell him he's failed unless he wants to be arrested on corruption charges and spend quality time in the Chinese penal system,” he added.
Australia is one of the most vulnerable
A recent report by the Organization for Economic Co-operation and Development (OECD) revealed “how Australia is vulnerable to trade shocks around the world because of our dependence on China,” added Dr. Jericho.
“Australia and South Korea are suffering the most from China's slowdown,” he said.
“I think those at the Reserve Bank and the Treasury would have their eyes on what's going on in China, even if the popular media coverage is going to focus on the madness of the US election, we shouldn't take our eyes off the US election and if Trump gets in. and they put a 60 percent tariff on the Chinese economy, it's going to hurt and it's going to hurt the Australian economy even more.
Australia would suffer the world's second biggest drop in national income if trade tensions with China worsen and more countries shift to in-house manufacturing, an OECD report has warned.
Meanwhile, Mr Shoebridge skewers current Australian politics, calling on the government to “celebrate political stabilisation” and then talk about China's trade policy – something he describes as “strategically insane”.
“The government should diversify away from this risky economy,” he noted.
“It's risky from a purely economic point of view, let alone for political reasons. There is a deep contradiction in Albanian politics spending $370 billion on nuclear submarines to deter an aggressive China and then talking about our trade relationship.
He said it was increasingly clear that the world's two largest economies, the US and China, were moving away from global trade, which would only accelerate if Trump took on a second term.
“The United States forces any Chinese business that wants to export and sell to the US to pay more and make it harder to do business, and President Xi Jinping's policy is to drive American and other foreign businesses out of China unless they hand over all their intellectual property to the prospect. Chinese competitors – the policies of both countries lead to economic separation,” he said.
Australia must move quickly or there could be dire economic consequences, he added.
“It could push Australia into recession if we continue to blindly believe in free trade and think that growing economic dependence on China is a good strategy. If we insist on being snow-blind while the world is changing – that will lead to trouble,” he said.
Australia's billion-dollar export is at risk
Trump's tariff threat couldn't have come at a worse time for China either, as it struggles with a sluggish economy, particularly in the construction industry, which used to be a massive engine of growth in the country.
But China's property market is also a big driver for Australia's economy, with iron ore reaching $124 billion last year and expected to jump to $131 billion this year.
However, the crisis in China's real estate market has continued over the past three years, and it was started by struggling Chinese beacon Evergrande, which finally went into liquidation earlier this year, owing more than $498 billion.
There is no sign that the crisis is over. Construction in China fell 80 percent in May compared to the same period four years ago, while developer financing fell nearly 25 percent in the first half of the year.
This raises the alarm for Australia.
“Because a lot of materials are used to build the apartments and those apartment towers, it requires Australian minerals to be made into steel. It is certainly a problem, and not entirely unsurprisingly, because China's real estate market boomed so much that it was unsustainable to continue at that level,” said Dr. Jericho.
“That's another thing in the column of concerns about the Australian economy and sustainability and the things that are happening in China and America.
“Because if Australia is not supplying things that will be used in China's domestic economy, we would like to supply things that China makes and exports to the world, especially to America.”
The Chinese are also moving away from property investment after being promised it was a guaranteed profitable investment, Mr Shoebridge said, but instead watched the industry implode.
“Chinese consumers have lost faith in property investment and this is spreading through local government finance and state-owned banks,” he noted.
“The idea that China can export its way out of this mess is troubling with the economic headwinds that the rest of us are experiencing.”
But Mr Shoebridge said it was uncertain whether the golden days of Australia's iron ore exports would stop because President Xi would continue to “force companies to build things that nobody wants to buy for a while”.
“So predicting the exact moment when iron ore will collapse remains a fool's game,” he said.
“The housing market is structurally slowing and there is huge overcapacity, so demand for imports such as steel has to fall.”
Meanwhile, Chinese consumers have turned to saving instead of spending.
Luxury brands are suffering from China's slowdown, with LVMH, the company that owns the likes of Louis Vuitton, Bulgari and Dior, along with others such as Hugo Boss and Burberry Group, hurt by Chinese consumers' reluctance to spend.
LVMH reported that sales in the region, which includes China, fell 14 percent in the second quarter, while Swatch Group revealed that sales in China fell 30 percent in the first half of the year, resulting in reduced production.
From an Australian context, BHP Group and Rio Tinto are among the companies that earn more than 40 percent of their revenue from China.
Australia teeters closer to recession
Trump has also signaled a 10 percent tariff that would hit Australian businesses, which he says would protect American businesses from nations that want to “steal our jobs” and “steal our wealth.”
Dr. Jericho warned outside the influence of international politics, Australia's economy was already showing signs of being under pressure with rising unemployment.
An ANZ report revealed unemployment could rise to 5 per cent by the end of next year.
“If that were to happen, I would say Australia would be in recession, so the risks are very high here,” he said.
“That's why the Reserve Bank should be hesitant to raise interest rates because we know that household spending has been low and we know that private sector job growth has been very weak over the last six months. All of this points to an economy that has actually slowed due to the 3.25 basis point rise in interest rates.
“The risks of a recession are already there, but if we see a trade war break out, I think those risks will increase quite dramatically.”
