A burgeoning trade conflict between China and the United States is generating widespread concern, with repercussions anticipated far beyond these two global giants, including in Australia.
This week, President Donald Trump dramatically increased tariffs on Chinese imports to a remarkable 145 percent while temporarily suspending duties on most other nations. The Chinese government has responded forcefully, asserting its readiness for an extended struggle, and signaling little inclination to concede.
According to Isaac Goss, of Monash University Business School, the situation is entering a precarious phase where each side will test the other’s resilience. “The most concerning aspect is the willingness on both sides to engage in retaliatory measures,” he stated.
He continued, “While these tariffs will undoubtedly inflict damage on the world’s largest economies, further escalation could effectively eliminate trade between them, triggering a significant shock to the global economic order.”
Impact on Australia
Australia’s economy is particularly vulnerable due to its close trading relationship with China, currently its largest export market. The Australian mining sector—a vital source of billions in revenue through exports of iron ore and coal—is especially exposed.
“Continued tit-for-tat escalation would significantly reduce demand for these resources,” Goss explained.
Potential knock-on effects within Australia could include:
- Rising unemployment
- Falling prices due to increased competition from cheaper goods from tariff-affected nations like China, Vietnam, and Cambodia.
In response to these economic headwinds, the Reserve Bank of Australia is widely expected to reduce interest rates at its upcoming meeting in May, with further reductions likely later this year.
Goss anticipates limited impact on the superannuation sector, suggesting that younger investors have ample time to recover any losses, while older investors typically shift towards more stable investments.
China’s Retaliatory Options
Last year, the US imported $438 billion worth of goods from China, compared to $143 billion in American exports – creating a trade deficit of $295 billion. This imbalance provides China with various options for counteraction, including:
- Suspending cooperation on combating fentanyl
- Imposing stricter quotas on agricultural imports
- Targeting US service industries within China, such as finance and legal firms
Geopolitical Shifts
Beyond the purely economic consequences, the trade war is reshaping global alliances. Attempts by the previous Biden administration to forge a coalition of Southeast Asian nations now seem less certain after countries like the Philippines and Vietnam were initially targeted with significant tariffs.
In a notable gesture, China extended an offer of cooperation to Australia, a key security ally of the United States, proposing joint efforts to safeguard global free trade. Chinese Ambassador Xiao Qian called for Beijing and Canberra to work together in this uncertain climate.
Prime Minister Anthony Albanese responded cautiously, affirming that “Australia will speak for ourselves,” reflecting a desire to maintain independence while navigating complex geopolitical dynamics following years of strained trade relations with China after previous sanctions were imposed on Australian exports.
