Can China once again be Australia’s backstop?

Amid all of the confusion and dire economic predictions arising from the United States chaotic introduction of tariffs against Australia, we should arguably not look no further than our biggest trading partner.

Just as China greatly helped to soften the blow of the global financial crisis by ordering up large amounts of Australian minerals to stimulate its own economy, so China is once again looking to come back from some tough economic times during the Covid pandemic years.

New markets the key to fighting tariffs

Some of Australia’s biggest fears about new tariffs include some of our largest exports in areas such as beef, lamb, wheat and a range of other mining and agricultural exports.

In virtually every case China would be a natural market to replace any lost exports to the United States.

Given Prime Minister Albanese’s policy of not retaliating against tariffs, the best policy answer is to quickly find alternative markets for products that we would otherwise have sold to the United States.

Ironically, it was Chinese tariffs against Australia that taught us the wisdom of seeking out alternative markets, in that case for barley, wine, lobsters and a range of other products that China slapped quite high tariffs on.

China well equipped to counter tariffs

According to some of the experts who spoke at a recent China investment investor symposium, China is much better equipped to absorb US trade tariffs and is also poised for growth, all of which could be highly beneficial for Australia.

VanEck cross-asset specialist Anna Wu said the level of economic growth in China will help lift its trade partners, of which Australia is a major one.

She said it was not a secret that weak demand in China leads to a poor trade performance by Australia.

China trying to boost domestic demand

One of the great benefits about trade with China is that it is much more isolated against external factors such as US policies and at the moment China is looking to boost domestic demand, which should also lift demand for many of Australia’s exports.

This is not the case for many other developed markets such as Japan and Europe and our performance should be boosted by China’s swing to deficit spending to promote consumer spending and investment.

While China is a player in the tariff war, already slapping retaliatory tariffs on the US, this might even make its stimulus efforts more dramatic to overcome any negative growth impact from the US actions.

Chinese savings have massive stimulus potential

The increase in Chinese savings over the past five years are already estimated at a staggering US$9.8 trillion or A$15.5 trillion so any success by the Chinese government in boosting consumer confidence should come at a perfect time to also boost Australian exports.

The Chinese economy is already switching to being more driven by consumers and less by manufacturing, with consumer spending being responsible for a lot of the country’s growth in GDP.

Of course, Australia needs to look at more than just China in developing a trade driven response to US tariffs, but any rising growth within China would be extremely helpful in keeping Australian exports strong.