The fallout from an outright trade war between China and the US will be felt far beyond the borders of the world’s two largest economies, including in Australia.
President Donald Trump this week abruptly jacked up tariffs on Chinese imports to a startling 145 per cent, while freezing duties on most other nations for 90 days.
The Chinese government reiterated it was prepared to “fight to the end” and there seems little likelihood of the emerging superpower backing down.
The bitter dispute looks like entering a critical phase determined by which side can stand the most pain, one expert says.
“The most worrying fact is both sides are willing to play tit-for-tat,” said Isaac Goss, of Monash University Business School in Melbourne.
“The tariffs will take a massive hit to the two biggest economies in the world, but certainly any more rounds of escalation would all but zero out the trade between the two countries.
“And that would have a profound effect on the US-China and consequently, the global economy.”
How does it impact Australia?
Any downturn to the economy in China – Australia’s biggest trading partner – would have a ripple effect felt here, especially for the mining industry, which earns billions of dollars in exports to China.
“That would hammer demand for the iron ore and coal we export to fuel their economy, especially if the tit-for-tat escalation continues,” said Goss.
The flow-on effects for Australia may including rising unemployment and falling prices as cheap goods from tariff-hit economies, such as China, Vietnam and Cambodia, seek new markets, including Australia’s.
“Against that backdrop, the Reserve Bank of Australia is almost certain to cut rates at its next meeting in May, and further cuts later in the year look increasingly likely.”
Goss says the impacts on the superannuation sector should be fairly limited.
“Young people who are the most exposed should have plenty of time to make up the losses, while older investors should have mostly shifted away from volatile stocks into safer assets.”
How can China hit back against the US?
Last year the US imported $US438 billion ($731 billion) worth of goods from China, while American exports to China were valued at $US143 billion, according to the US Trade Representative office.
That represents a trade deficit of $US295 billion.
China still has a range of options to strike back at the US, experts said, including suspending cooperation on combating fentanyl, placing higher quotas on agricultural products and going after the US trade in services in China such as finance and law firms.
While the chance of negotiations between Washington and Beijing remain, Chinese President Xi Jinping, like other world leaders, can earn public support by standing up to Trump, even if the tariffs cause economic pain.
Tariff impacts go beyond economics
The latest round of tariffs by the Trump administration threaten to upend longstanding geo-political allegiances.
Efforts by the former Biden administration to build a loose coalition of south-east Asian nations, such as the Philippines and Vietnam, now look far off after they and other countries in the region were initially targeted with some of the biggest tariffs.
Another sign of the geo-political impact was China’s offer to “join hands” with Australia – a key security partner of the US – in the face of the global economic uncertainty.
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It was flagged by China’s ambassador to Australia Xiao Qian who called for Beijing and Canberra to work together in the hope of defending global free trade.
His statements drew a cool response from the federal government, which has been rebuilding trade links with China after Australia exports were targeted with sanctions over a period of five years.
Prime Minister Anthony Albanese replied by saying Australia “will speak for ourselves”.
