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Concerns grow about impact of US-China trade deal on Aussie economic stability

US President Donald Trump shakes hands with Chinese Vice Premier Liu He (Source Bloomberg)

It looks like the US-China trade spat is finally coming to an end as the two great powers sign off on the first phase of a new trade deal, with many believing that Australia will be disproportionately affected, hindering the security and stability of the national economy.

It looks like the US-China trade spat is finally coming to an end as the two great powers sign off on the first phase of a new trade deal, with many believing that Australia will be disproportionately affected, hindering the security and stability of the national economy.

Australia has enjoyed a well documented, record-setting three decades of uninterrupted economic growth buoyed by the voracious resource, energy and agricultural appetite of a growing China.

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However all good things come to end as the political, economic and strategic competition between the US and China enters a new phase, placing both the global and Australian economies in a precarious position.

The growing period of economic, political and strategic competition that has come to characterise the relationship between the two great Eastern and Western linchpins of the Indo-Pacific – the US and China – has had marked impacts on the cohesiveness of the region and the enduring stability.

This period of of the global economic, political and strategic disruption has also seen allies like Japan and South Korea turn on one another, rekindling ancient rivalries and enmities, driven by contemporary economic and strategic concerns – with Australia firmly caught in the middle.  

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However, it appears as though US President Donald Trump has successfully brought China to heel with the two nations signing phase one of the agreement, despite it largely being a win for the US economy, it appears to cause some challenges for Australia's own economic situation. 

Australia's economy is largely defined by exporting natural resources – buoyed by the voracious demands of the Indo-Pacific, namely China, has prevented the nation from spiralling into a recession and reinforced the nation's balance sheet for nearly 30 years.

However, this focus on raw resources, flanked by agriculture and services diminishes the complexity and competitiveness of the national economy – something it now appears will cause issues following the completion of phase one of the US-China Trade deal.

The fall out for Australia

Phase one will see China committed to purchasing US$200 billion ($290 billion) worth of extra goods from the US over the next two years, while also directly removing 'unfair trade practices', leaving parts of Australia's economy exposed despite reassurances by China's Vice Premier Liu He that the rising power's other partners will not be impacted. 

In particular, agriculture, resource and energy exporters could be the hardest hit should China keep to its word in dramatically increasing its consumption of similar US goods, leaving Australian businesses, some already struggling with drought and skyrocketing energy prices, in the lurch and heavily out of pocket. 

Nevertheless, some Australian exporters have been able to capitalise on the ongoing trade animosity – Adam Creighton of The Australian highlighted this reality, stating, "For all the fretting, some of our exporters have done brilliantly out of the US-China trade war, which ramped up in late 2018, effectively shutting off a raft of US exporters from Chinese buyers.

"We’ve doubled the volume of cotton exports, almond exports have shot up six-fold,” said Tim Hunt, an agriculture analyst at Rabobank in Creighton's analysis. 

Serving as an example of the exposure of Australia's economy, Creighton states, "Locally, blue-chip stocks crashed through 7,000 for the first time but it wasn’t a fun milestone for resource investors.

"Beach Energy sank 2 per cent. Santos and Oil Search went backwards almost as much. And no wonder: up to 10 per cent of $50 billion in LNG exports could be lost to US competitors, according to Commonwealth Bank commodity analyst Vivek Dhar. The agreement calls on China to buy an extra $US52 billion ($75 billion) of US energy resources."

However, despite the back slapping and a remarkable rally on the Australian Stock Exchange, it is now clearer than ever that Australia's economy is too dependent upon China, dramatically impacting national security. 

Economic diversity is essential for national security

This realisation echoes the findings of the latest Harvard University ‘Growth Lab Atlas of Economic Complexity’ study, which places the stagnating Australian economy in 93rd place, behind Kazakhstan, Uganda and Senegal, and just ahead of Pakistan and Mali.

Further influencing this, we have seen repeated attempts to stimulate Australia's economy through tax relief and interest rate cuts, which appear to have done little in the way of stimulating domestic consumer and economic confidence, despite a turnaround in the nation's trade surplus on the back of mineral exports resulting in a larger than expected surplus of $5.8 billion. 

Undeniably, China is an immense economic, political and strategic power – with a voracious appetite driven by an immense population and the nation positioning itself as the manufacturing hub of the world.

However, beyond the 1.4 billion people, Indo-Pacific Asia is home to approximately 2.5 billion individuals, each part of the largest economic and industrial transformation in human history. 

Successive Australian governments of both persuasions have sought to expand Australia's integration and participation in the economic miracle that is the rise of the Indo-Pacific.

China has continued to dominate the nation's economic narrative from the housing sector to agriculture and resources and energy – often to the detriment of relationships with regional nations that approach Beijing with a degree of caution. 

Furthermore, Australia's insistence on pursuing 'free trade agreements' with nations that enact 'unfair trade practices' like additional layers of legislative and bureaucratic industry protections, combined with successive governments presiding over the death of Australia's manufacturing sector and a reluctance to invest in advanced manufacturing techniques, has prompted Australia to become little more than a mine and farm for the rising powers of Indo-Pacific Asia.

In doing so, Australia has become the very embodiment of the lazy country moniker, which author Donald Horne originally intended the Lucky Country to be known as. 

Your thoughts

Australia's position and responsibilities in the Indo-Pacific region will depend on the nation's ability to sustain itself economically, strategically and politically.

Despite the nation's virtually unrivalled wealth of natural resources, agricultural and industrial potential, there is a lack of a cohesive national security strategy integrating the development of individual, yet complementary public policy strategies to support a more robust Australian role in the region.

Enhancing Australia’s capacity to act as an independent power, incorporating great power-style strategic economic, diplomatic and military capability, serves as a powerful symbol of Australia’s sovereignty and evolving responsibilities in supporting and enhancing the security and prosperity of Indo-Pacific Asia.

Shifting the public discussion away from the default Australian position of "it is all a little too difficult, so let’s not bother" will provide unprecedented economic, diplomatic, political and strategic opportunities for the nation. 

Get involved with the discussion and let us know your thoughts on Australia's future role and position in the Indo-Pacific and what you would like to see from Australia's political leaders in terms of shaking up the nation's approach to our regional partners.

We would also like to hear your thoughts on the avenues Australia should pursue to support long-term economic growth and development in support of national security in the comments section below, or get in touch with This email address is being protected from spambots. You need JavaScript enabled to view it.or at This email address is being protected from spambots. You need JavaScript enabled to view it..

Concerns grow about impact of US-China trade deal on Aussie economic stability
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