The Trade War Brings Australia Closer to Recession

A new day, and a new development in the US-China trade war tit-for-tat.

To date, the trade ‘war’ has amounted to two powerful leaders throwing tariffs at each other behind a podium.

Regardless, it took a new twist overnight with China announcing it will place tariffs on the US$14 billion worth of soybeans it buys from the US. It was only yesterday that I wrote in Strategic Intelligence that it wouldn’t be long before China targets the US soybean sector. But even I wasn’t expecting it to be the next day.

Bloomberg reports:

China’s Ministry of Commerce on Wednesday said it plans to impose 25 percent duties on the commodity in addition to other US agricultural produce, including wheat, corn, cotton, sorghum, tobacco and beef. They’re among 106 products ranging from aircraft to chemicals targeted by Beijing in retaliation for proposed American duties on its high tech goods.

Crucially, China buys almost all soybeans produced in the US.

This move will be good news for soybean producers in Brazil. Australia may even be able to step up and increase soybean exports to China.

However, as an Aussie investor, the daily barrage of US-China trade war news is frustrating.

After all, just how much can taxes from other countries impact us?

Well, whether we like it or not, Australians are indirectly impacted by this in a big way. We won’t feel the immediate pain through the tariffs…but the long-term effects will hurt us.

China is our biggest trading partner.

They buy pretty much any rock we offer up for sale.

Be it the 600 million tonnes of iron ore they bought last year. Or the 57.4 metric tonnes of gold our miners shipped off to the Middle Kingdom. Then there’s the 45 tonnes of thermal coal. And let’s not forget about 12-million-odd tonnes of bauxite and 35 million tonnes of aluminium we sail up through the South China Sea shipping channel each year.

My point is, Australia is an exporting country. Our red dirt is rich with minerals that others want. Yet few other countries have the same appetite for red rocks as China.

Which is why this spat is so harmful to Australia.

Increasing taxes to protect local US industries leads to slowing global growth. It may lead to new jobs in the US — which is US President Donald Trump’s goal — but, in the meantime, restricting trade through tariffs hurts consumption in both countries.

It’s not so much of a problem for Australia if the US slows down and internalises its economy.

However, it is a major problem if China’s enormous growth and credit-fuelled economy suddenly slams on the brakes.

When China’s spending drops, we feel it more than most.

Any reduction in the sale of Aussie commodities is a massive blow to the Australian economy.

Make no mistake; there’s an economic slowdown coming to Australia. We are the real casualties of the US-China trade war.

This article was originally published by Daily Reckoning

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