China and Australia’s trade is interlinked in many areas but the largest value items are commodities Beijing arguably cannot readily source in sufficient supply elsewhere. This is often missed when Australia and China’s trade relationship is weighed against security ties with the US and a rapidly changing world order some view as a New Cold War.
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President Donald Trump announced that the United States will impose a 10 percent duty on an additional $200 billion of Chinese imports as of next week, quickly escalating a trade war that has hit broad swaths of the global economy.
Also Read: U.S. China Trade War: Analysis of Latest Developments
Governor of the Reserve Bank of Australia Philip Lowe’s speech last week highlighting the risks to the Chinese financial system from shadow banks – non-bank financial institutions often operating in more lightly regulated wholesale markets – has once again drawn attention to the major economic risk in China.
If nothing further is done, the U.S.-China trade deal reached this month will be remembered, to quote a phrase coined by the current president of the United States, as “the single worst trade deal” ever negotiated.
The fifth icy age has descended on China–Australia relations—cooling business, frosting diplomacy and chilling strategic perspectives. China has put Australia into diplomatic ‘deep freeze’. China speaks of ‘a growing lack of mutual trust’, accusing Australia of ‘systematic, irresponsible, negative remarks and comments regarding China’. Australia concedes ‘tensions’ while blaming ‘misunderstandings and mischaracterisations’.
Over the past five decades or so, Asia’s economies have relied largely on an export-oriented development model to support rapid economic transformation and growth. But with US President Donald Trump fulfilling his promise to adopt a more protectionist approach to trade — an effort that could spur retaliatory measures by other countries — that model is coming under increasing strain.
Donald Trump is kicking off an Asia tour next week that includes a two-day state visit to China starting Nov. 8. At the top of the agenda for his meeting with Chinese president Xi Jinping is, of course, North Korea and trade—two items that, in Trump’s mind, can be traded against each other.
It’s a story about the tail that wagged the dog that didn’t bark that isn’t in Kansas anymore. The dog that didn’t bark is commodity prices, and the tail that wagged is the Chinese yuan.
