US and China trade war ceases, Does Australia stand to gain? [Joey Huang ECO3]

Source: New Your Times

Donald Trump has touted the new trade deal with Beijing as a major win-win for both economic superpowers. Experts stand in concluding that Australia is set to lose from the new truce. After nearly 20 months of intense negotiations, the trade war has seemingly found a truce between the two great economic powers.

tariffs*  a tax or duty to be paid on a particular class of imports or exports.

Events leading up:

For many months prior, United States President Donald Trump nor China’s president Xin Jinping showed signs of backing down in the trade war that officially began on July 6, 2018. In the month of July, Donald Trump had already threatened China with sweeping tariffs due to unfair trade practices which may have been the trigger for the abrupt 25 percent tariff on 818 imported Chinese products valued at 34 billion dollars on July 6, 2018.

This was the first China-specific tariffs was triggered an eruption with tariffs in response from China that was retorted by the US which continued in a cycle. Finally, in the early months of November 2019, trade talks over tariff rollback was discussed leading up to China agreeing to trade deal on December 13 just before next tariff hike.

Source: Peterson Institute For International Economics

What does the trade deal entitle?

The ‘phase one’ of the trade deal ceased the incoming tariffs from the US on popular electronics like smartphones and laptop and instead prompted the reduction of tariffs on $120 billion worth of Chinese goods from 15% to 7.5% which lead to more products being excluded and reduced from tariffs.

Source:  The Conversation

How will Australia be affected?

With the trade deal being put in place, Australia is set to potentially lose out due to due to China agreeing with buying a significant number of additional products. If it were not the case, then Australia would’ve gained since reduced tariffs would mean more pocket money for the people within China and the US giving rise to possible purchases of imports from Australia.      

Announced in the trade deal, China has agreed upon to purchase at least an addition $200 billion worth of US goods and services over the course of two years.

The amalgamate includes:

• $78 billion in manufactured goods

• $54 billion in energy purchases

• $32 billion in farm products

• $38 billion worth of services.

This would mean that China will theoretically reduce such purchases from Australia which would indefinitely affect farmers as well as Australian liquid, natural gas and coal producers. Because of the government influence, smaller economies such as Australia will most likely lose out.

Source: News of Asia

This would negatively affect Australian stakeholders giving them less interest and confidence in Australian international trading and the Australian market in general.

Commsec chief economist Craig James quotes that:

“China says that the extra purchases of US goods won’t be at the expense of other countries. We’ll have to wait and see”

With the current information, it could be hypothesised that Australia would lose out, but not by too much since the extra pocket money would still potentially cover up the loses from the government influences set out from the trade deal.

The New York Times:

The US and China trade deal information