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Among many other colourful characters, Donald Trump’s cabinet appointments<\/a> include two protectionist and anti-China hardliners, Robert Lighthizer and Peter Navarro, who sit at the helm of US trade and industry policy. That decision confirms a belligerent change of tack in Sino\u00ad\u2013American economic relations. But what are the implications for Australia?<\/p>\n A number of monetary economists<\/a>, including Saul Eslake, have warned that a potential escalation to a full-blown China\u2013US trade war poses the single biggest economic threat to Australia<\/a>. That position argues that the already struggling global economy can\u2019t face a superpower trade war, likely to be triggered by the Trump administration at the monetary level, when the RMB\/USD exchange rate will reach the unprecedented level of 7 to 1 (it\u2019s currently sitting at around 6.9). Furthermore, a falling Chinese currency combined with protectionist measures in the US will dampen the Chinese economy by way of reduced volumes of exports and higher interest rates that will spread across the Asia\u2013Pacific. According to such reasoning, that could have negative impacts for Australia\u2019s economy; prices for iron ore, coal and natural gas could possibly drop\u2014we\u2019ll know by the middle of the year.<\/p>\n However, it\u2019s questionable that such crisis would be detrimental to Australia. In fact, focusing on monetary dynamics alone fails to capture the role of industrial production and regulatory arrangements in the global supply chain.<\/p>\n On the contrary, after triangulating the trade and industrial data of the US, China and Australia and considering the current trade regulatory framework, there are substantial reasons to argue that Australia is well placed to fill the gaps left by a wrecked US\u2013China trade relationship at the best of its industrial capacity. Australia is indeed one of a handful of countries to have solid free trade agreements in place with both the US and China.<\/p>\n As it currently stands, the annual US\u2013China trade balance<\/a> is worth over US$600 billion\u2014around the yearly value of Australia\u2019s overall trade volumes<\/a>.<\/p>\n Australia’s rocks and crops economy\u2014in particular the growing productivity potential of its agricultural<\/a> and mining<\/a> sectors\u2014is strong enough to rise above global monetary tensions and falling commodity prices, thanks to rising export volumes to both the US and China. It appears that the harder the two superpowers use their trade relations as leverage in their strategic competition, the harder they\u2019ll need to look for other sources to sustain their industrial production levels and corporate supply chain.<\/p>\n In a trade war scenario, the possible initial hiccups in the global supply chain will likely be short-lived. In fact, let\u2019s consider that about half of US imports are estimated to be made of intra-firm trade<\/a>, and that protectionist measures from abroad tend to have insignificant effects on the production input of Chinese State-owned firms<\/a>. Thus, multinational corporations are proven to be particularly adept at quickly replacing the flows<\/a> of their industrial production and distribution, as is shown by history<\/a>.<\/p>\n In other words, in the event of a Sino\u2013American crisis, the major trading actors in both countries will be able and willing to promptly move their business somewhere else.<\/p>\n Thanks to the existing spaghetti bowl of international economic partnerships, Australia is in prime position to be this \u201csomewhere else\u201d for both countries. In fact, Australia is the second largest economy and Sino\u2013American trading partner of the only six countries that have in place free trade agreements with both the US<\/a> and China<\/a>, including South Korea, Singapore, Chile, Peru and Costa Rica.<\/p>\n The liquefied natural gas (LNG) trade is a significant case study for Australia in this instance. Australia is the world\u2019s second largest LNG exporter<\/a>, and is set to become the first by 2020. It exports more than $16 billion a year of LNG and by 2020 the LNG industry is expected to contribute<\/a> $65 billion to the Australian economy, equating to 3.5% of its GDP. 2016 saw the start of LNG exports from the US<\/a> and an unprecedented boost of Chinese imports. In a trade war scenario, the US would be locked out of China\u2019s thriving market<\/a> and thus LNG prices would rise even higher than they already have. With sharply rising production capacity<\/a>, Australia needs to expand and diversify its customer base to keep the lion\u2019s share of the global LNG market<\/a>. China\u2019s response to Trump\u2019s trade policy is set to dampen the rise of a strong emerging competitor<\/a> of Australia\u2019s highly lucrative LNG industry, and thus open up new commercial frontiers.<\/p>\n The LNG example clearly shows that Australia\u2019s economy would benefit from a contained US\u2013China trade crisis. Nevertheless, should that trade crisis escalate beyond the economy, Australia\u2019s luck may run out.<\/p>\n The Chinese leadership doesn\u2019t hide the fact that promoting international economic integration outside of the US control serves the purpose of carving greater geopolitical autonomy and flexibility<\/a> in the global decision-making processes. Beside Trump\u2019s trade policy, Xi Jinping\u2019s diplomatic strategy may also speed up the end of the US\u00ad\u2013China detente initiated by Nixon and Kissinger in the 1970s.\u00a0It remains to be seen whether China will also pursue hard-line policies to push the US outside of the Asia\u2013Pacific. In that instance, Australia would be caught between a rock and a hard place<\/a>.<\/p>\n If the US\u00ad\u2013China trade war were to escalate to the geopolitical level, the American order in the Asia\u2013Pacific would enter uncharted waters. For one thing, such an unsavoury development may compel Australia to make a clear choice between trading with China and preserving America\u2019s security patronage.<\/p>\n","protected":false},"excerpt":{"rendered":" Among many other colourful characters, Donald Trump’s cabinet appointments include two protectionist and anti-China hardliners, Robert Lighthizer and Peter Navarro, who sit at the helm of US trade and industry policy. That decision confirms a …<\/p>\n","protected":false},"author":609,"featured_media":30794,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_mi_skip_tracking":false,"footnotes":""},"categories":[1],"tags":[52,1428,1007,365,204],"class_list":["post-30727","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-general","tag-china","tag-donald-trump","tag-economic-growth","tag-trade","tag-xi-jinping"],"acf":[],"yoast_head":"\n