Australia wins big in US-China trade war

Australia has emerged as the “world’s biggest winner” from the US-China trade war.

Federal Minister for Trade Simon Birmingham.Picture: Kym Smith

Australia has emerged as the “world’s biggest winner” from the US-China trade war, with surges in iron ore and coal prices supporting the first current account surplus in more than four decades.

Amid a thawing in the trade standoff between the superpowers at the weekend, a new Deloitte Access Economics Business Outlook report highlights “pain in our economy has been home-grown”.

The report, titled Oz Muddles Through Global Uncertainty, warns that although global events had helped the economy, “that could change fast” and cited the housing market slump, consumer confidence and drought as negative growth factors.

“The geopolitical landscape is littered with worrying risks. But neither the drought nor the housing downturn are here to stay and there’s already stimulus via cuts to taxes and to interest rates, plus a lower $A,” Deloitte Access Economics partner Chris Richardson said. “And housing prices are now rising, which may limit the damage housing does to the economy from here on. So absent a spanner in the works from a global threat, Australia should keep muddling through the aftermath of a housing bubble and a drought.

“Growth won’t be flash but it should slowly lift. Yet that recovery looks unlikely to develop sufficient momentum to see wages accelerate or to see unemployment fall much over the coming year.”

In his report, Mr Richardson said the “world has been giving Australia a pay rise amid a global slowdown”. “That’s never happened before. It means Australia has been the world’s biggest winner from the trade wars and the slowdown in China,” he said.

“That marvellous combination has given us the first current ­account surplus in more than four decades. But wait, there’s more. Borrowing costs have collapsed. That’s a big benefit for a nation with a trillion dollars in global debt, with the savings from that building substantially over time via a lower net income deficit.”

Trade Minister Simon Birmingham on Sunday welcomed the progress in talks between US and Chinese negotiators, and said easing trade tensions could “only help to lift global economic confidence”.

As part of the truce, US President Donald Trump said planned tariff increases on Chinese goods would be scrapped, with Beijing committing to buying $40bn-$50bn worth of US farm products. “We will examine the details of any agreement when they are released. Initial products mentioned don’t pose any significant concerns to Australia and we hope that any agreement is consistent with World Trade Organisation rules,” Senator Birmingham said.

“We strongly back the competitiveness and quality of our ­exporters to compete on fair terms with any other nation, including the US. Through our free-trade agreements with both the US and China, Australian exporters are well positioned to continue to enjoy strong access to sell goods and services in both markets.”

The Australian understands that while there is limited detail on the US-China agreement, it is expected the soybean and pork sectors would feature prominently.

The Deloitte Access Economics report said Australia’s fiscal fin­ances had improved as rising house prices and commodity ­prices boosted state and federal taxes, with delays in the NDIS rollout slowing spending.

Mr Richardson said despite these factors, there remained a “fragility about revenues” and a heightened focus on budget surpluses. “They rely on two trends whose sustainability is suspect: Chinese stimulus and housing price rises in Australia,” he said.

“That’s why there’s a risk that this is just five minutes of surplus sunshine in the nation’s fiscal fin­ances, as the states in particular move back into deficit.”

Opposition Treasury spokesman Jim Chalmers said the report forecasts “below-trend growth of 2.2 per cent in 2019-20, well below the Morrison government’s budget forecasts”.