Australia and the Trade War: Frydenberg calls for “Cool Heads”

Australia and the Trade War: Frydenberg calls for “Cool Heads”

Australia and the Trade War

Frydenberg Calls for "Cool Heads"

On Thursday (13 June AEST), the Treasurer of Australia, Joshua Anthony Frydenberg, delivered a speech at the UK Policy Exchange Think Tank in London. He warned that the escalating trade tensions between the U.S. and China have “weighed on the global economic outlook and affected investment decisions, creating a degree of uncertainty”. In fact, according to the Australian government’s Department of Foreign Affairs and Trade, China is Australia’s largest export market, accounting for more than 30% of its exports in 2018. Frydenberg commented that the U.S.-China trade war has put Australia in a difficult position, and “ if we can have that uncertainty removed, it’s not only better for Australia but also better for the world.” Earlier, during the annual G20 Finance and Central Bank Deputies Meeting on June 08, 2019 in Fukuoka, Japan, Frydenberg urged the U.S. and China to resolve their trade war and mentioned that “from Australia’s perspective, given that China is our number one trading partner, and the U.S. is our number one investor, we want cool heads to prevail”.

The U.S. and China are two of the largest countries and economies in the world. Their economies are also completely intertwined. In the trade dispute, the U.S. demanded that China completely open all its markets, cut state subsidies to its companies, and respect intellectual properties. The Trump administration also threatened to impose more tariffs on Chinese imports unless Beijing could reduce $200 billion worth of goods in its trade surplus with the U.S. by 2020. American political commentator, Thomas Loren Friedman suggested that if the two countries begin to disrupt telecommunications connections, manufacturing supply chains, educational exchanges, and financial investments that have been made since the 1970s, the whole world will become less secure, less prosperous and less stable.

The trade tensions between the U.S. and China

On Monday (10 June), the U.S. President Donald Trump threatened to impose new tariffs on US$300 billion imports if Chinese president Xi Jinping does not agree to meet with him at the G20  Leaders’ Summit in Osaka on June 28-29. Both sides are supposed to hold crunch talks, but it is uncertain if they will make a deal. Last month, the highly controversial two-day talks between the two countries ended without a deal and the two sides slapped a new round of tariffs on each others’ imports. The U.S. had imposed a 25% tariff of US$200 billion on Chinese imports and took measures to impose an additional tariff of US$300 billion on Chinese goods. As a response, Beijing retaliated by hiking a 25% tariff of US$60 billion on U.S. imports. The data from the International Monetary Fund showed that the U.S.-China trade war could lead to a  $US 455 billion loss and cut global GDP by 0.5% in 2020. At the same time, the forecast from Commonwealth Bank indicated that if the U.S. and China were to tax each others’ imports at 25% and Mr Trump also took aim at the global auto industry, the world GDP would drop 0.25%.

On the other hand, the U.S. and China appeared to be engaged in a “tech cold war”. Following the ban on ZTE last year, Trump administration blocked Huawei last month, the largest telecommunication manufacturer in the world. Although Huawei was considered to be the leader in 5G, the U.S. government accused the Chinese telecoms equipment maker of espionage. Washington blamed Huawei being closely-linked to China’s Communist Party and its telecom equipment posing a national security risk. After Google, Intel, Qualcomm, and Broadcom collectively followed the executive order to ban Huawei, the analyst commented that the world is indeed splitting into two technology camps. 5G is generally seen as the fifth generation cellular network technology that provides super-fast download speeds and the ability to underpin new technologies like driverless cars. Both the  U.S. and China are battling to dominate the 5G market as the technology is the key to the future.

Australia’s economy amid the trade tensions

According to data from Bank of America, there was a 3% decline in the number of Chinese visitors to Australia in April. In addition, analysis from JPMorgan indicated that the U.S.-China trade war will shave 0.07% off Australia’s gross domestic 

product in the next two years. The Australian Gambling industry was one that was affected by the trade battle. The industry had experienced a plummet in revenues due to the decline in the number of Chinese high-rollers visits in their gambling venues.

Frydenberg reaffirmed that the Australian economy was well diversified and more than 70% of the economy was contributed from the service industry. For sectors with growth potential, the Treasurer awarded Australia’s larger fintech (financial technology) sectors, tourism, and education industry as really capitalizing on the growth in Asia. Moreover, he added that the rich resources in Australia such as iron ore, coal, and thermal had contributed significantly to the trading account.

By Steven Gao

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