Sep 18 2018
Trump tariffs escalate trade wars between US and China:
Mixed results forecast for Australian industry, caught between largest trade partner and biggest investor
The Trump administration has followed through on previous threats to implement 10% tariffs on over $200 billion worth of Chinese goods, driving the trade war between the United States and China to new heights. These tariffs, which will increase to 25% in January 2019, represent the latest round of trade brinksmanship between the world’s two largest economies. IBISWorld expects the trade dispute will have a mixed effect on the Australian market, and may increase prices for consumers.
The wide-ranging suite of tariffs announced today covers over 6000 products, including circuit boards, furniture, vacuum cleaners, and seafood. However, some products have been spared from the tariffs since they were first announced in July, including smart watches, bicycle helmets, and industrial chemicals. Overall, these tariffs apply to almost half of all Chinese goods imported to the United States.
“The trade war shows no signs of slowing down, with China pledging to implement tariffs on over $60 billion worth of American goods,” said IBISWorld Senior Industry Analyst Jason Aravanis.
President Trump has also announced plans to implement a third phase of tariffs, worth over $267 billion, if China implements any retaliatory measures. According to IBISWorld, the escalating tariff war is expected to increase prices across both economies, potentially slowing consumer spending and investment.
IBISWorld expects that these tariffs will have a mixed effect on the Australian market. Firms with a high exposure to the Chinese and American economies are likely to be negatively affected. However, some Australian firms may be able to increase exports to these markets due to the favourable trade relationship Australian maintains with both economies.
“Australia is caught between its largest trade partner and its largest investor; between the economy we rely on and the nation we look to for our security. While the trade war presents opportunities for some sectors in the Australian economy, it may increase costs and lower demand for others,” said Mr. Aravanis.
“Global trade is interconnected and it is the flow-on effects of the trade war, rather than any direct impact, which will likely hurt Australian businesses the most. Tariffs on production inputs for Chinese manufacturers would represent an increase in the cost of doing business,” said Mr. Aravanis.
According to IBISWorld, Australian businesses will need to recoup these tariff costs to maintain profit margins and operational stability. Without subsidies from the Chinese government, manufacturers and producers in China may be forced to pass the cost of these tariffs on as higher prices to their customers – many of which are Australian firms.
“The spending capacity of many Australian consumers is already razor thin. Household debt is at record levels and three of the big four banks recently raised interest rates on mortgages at a time when wage growth is stagnant and house prices are showing signs of declines,” said Mr. Aravanis.
“Any increase in prices will be difficult for consumers to bear. Many consumers will likely decide to buy less, buy the cheapest option, or simply go without to make sure ends meet,” said Mr. Aravanis.
Australian businesses may need to re-evaluate the security of their supply chains, and transition to sourcing inputs from outside of China. Export-focused firms should also keep an eye out for new export opportunities as American goods are locked out of the Chinese market.
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