As the bilateral trade war between the US and China heats up, we look at what this might mean to Australia caught between its cultural and military ties to the US and its strong economic relationship with China.

In 2017, the US imported well over $500bn worth of products from China. The US trade deficit in the same year was over $811bn of which China accounted for around 46%. From China’s perspective, the US market accounts for 19% of all Chinese exports and US imports represent 8% of China’s imports.

The trade war between the US and China escalated in September when the US imposed a further round of tariffs on US$200bn worth of Chinese goods, bringing the total value of Chinese goods impacted by the trade war to approximately US$250bn.

China has responded by imposing tariffs of between 5% and 10% on a further round of US goods bringing the total value of imports targeted to US$110bn.

Economists predict that the trade war may continue to the point where all Chinese goods imported into the US and all US goods imported in China will be impacted.

To date, Australia has avoided any significant impact from the trade war. Australia was one of the few countries excluded from the tariffs although the US only accounts for 0.8% of Australian steel and 1.5% of aluminium exports.

The issue for Australia is the potential reduction in China’s GDP growth. Currently, mainland China is Australia’s largest two-way trading partner representing over 28% of Australia’s export market (the US represents 6.3%) and over 18% of our imports. A slowdown in China’s growth spells a slowdown in imports reducing the value of Australia’s export market and impacting Australia’s growth.

While Australia is not directly impacted by the bilateral trade war, there is a potential danger that consumer sentiment might be damaged with consumers unwilling to spend and instead taking a ‘wait and see’ approach.

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