US-China trade deal puts squeeze on Australian farms

Australian energy and agricultural exporters face a hit to their multi-billion-dollar Chinese market from the US-China trade deal.

Chinese Vice-Premier Liu He and US President Donald Trump shake hands after signing ‘phase one’ of the US-China trade agreement in Washington on Thursday. Picture: Reuters

Australian energy and agricultural exporters face a hit to their multi-billion-dollar Chinese market from the trade deal signed ­between the US and Beijing that sparked a worldwide share rally and pushed the Australian bourse to a record.

China committed to buy $US200bn ($290bn) worth of extra goods from the US over the next two years in the phase-one agreement that was lauded by Donald Trump as “momentous’’.

Trade Minister Simon Birmingham played down the implications of the deal for Australian exporters but Commonwealth Bank commodity analyst Vivek Dhar predicted up to 10 per cent of $50bn worth of LNG exports could be lost to US competitors.

The deal will allow the US President to claim a partial but important political victory in his tariff showdown with China that he will showcase as part of his re-election campaign this year.

“Today we take a momentous step, one that has never been taken before with China, towards a future of fair and reciprocal trade,” Mr Trump said shortly ­before signing the agreement with Chinese Vice-Premier Liu He at the White House.

“Together we are righting the wrongs of the past and delivering a future of economic justice and security … most people thought this could never happen,” he said. He described the deal as a “sea change in international trade’’.

The deal unleashed a wave of optimism on world sharemarkets, pushing Australia’s S&P/ASX 200 above 7000 for the first time.

However, energy stocks such as Beach Energy, Santos and Oil Search fell. Agriculture giant Graincorp fell 1.7 per cent on Thursday after the deal contained a promise to buy an extra $US32bn in “agriculture” products from the US. Australia ­exported $900m of beef and $1.7bn of dairy to China last year. Sydney Airport Corporation shares also fell on the Chinese pledge to encourage more tourists to visit the US.

In addition to buying $US200bn more US goods over two years, the deal required China to remove unfair trade practices.

LIVE: POTUS Signs the Phase One Trade Agreement! https://t.co/teqGqjdgeZ

— The White House (@WhiteHouse) January 15, 2020

China pledged to give US companies greater access to its financial services, greater protection to US intellectual property and to ­refrain from manipulating the Chinese yuan to assist its exporters.

While the trade deal provides a welcome truce in the escalating war of tariffs, the promised spending spree on US goods covers ­almost every sector where Australia sells to China except iron ore. China has agreed to buy an extra $US32bn in agricultural goods over the next two years including beef, soybeans and seafood.

It will spend another $US52.4bn on ­energy including LNG, crude oil and coal and another $37.9bn on services including tourism.

The final $US77.7bn is in manufactured goods, an area where Australia does not sell much to China.

The Australian Minerals Council challenged whether the US had the physical capacity in terms of production and export infrastructure to meet the targets set out in the deal.

Others commentators argued the zero tariffs now on many Australian exports as a result of the free trade agreement with China would still give Australian exports of beef, wine and other products a major advantage over goods from the US which would continue to underwrite demand from China.

But Yun Jiang, co-editor of China-watching newsletter China Neican, said: “The implication of a trade deal between two big economies is that smaller economies such as Australia will likely lose out. There is an extensive list of what China has agreed to in terms of giving market ­access to US businesses and products which covers dairy and ­infant formula, poultry, beef and pork and aquatic products.

“It appears unlikely the same treatment will be extended to products from other countries given the clauses specifically apply to US regulators,’’ she said.

“As Australia also exports beef and dairy including infant formula to China, it may be ­adversely affected by this deal.”

 

Australia’s major LNG exporter, Woodside, which is a major exporter to China, and the Australian Minerals Council both stressed the positive impacts of the deal for world economic growth that would assist Australian energy exports.

MCA acting chief executive Gavin Lind said: “The trade war between the US and China has shaken markets across the globe, so any easing of trade tensions between those countries is good for business confidence, the world economy and financial markets.”

He said the increased confidence following the deal “should lead to greater demand for Australian products, especially from growing Asian economies who rely on our world-class minerals for infrastructure, energy, transport and communications”.

Woodside chief financial officer Sherry Duhe said “ongoing uncertainty around tariffs on US LNG” could potentially provide opportunities for Woodside as a cost-competitive and reliable global supplier”.

Woodside argues that Chinese customers will continue to buy its LNG as it offers “a competitive cost of supply (and) a geographic advantage for current and future customers in Asia Pacific”.

Senator Birmingham said he expected the bulk of the extra purchases of US goods from China would be in areas which did not affect Australia such as manufactured goods, soy beans, pork and poultry.

Under the deal, in return for the extra Chinese purchases, the US agreed to cancel planned new tariffs on $US156bn of Chinese goods and cut in half the 15 per cent tariff on $US120bn of ­Chinese goods imposed in September. In a letter to Mr Trump China’s President Xi Jinping said the deal was “good for China, the US and the whole world”.

However the deal still leaves about $US360bn in tariffs on ­Chinese imports to the US.

It will open the way for talks on the Phase Two deal which will more vigorously tackle China’s unfair trade practices but they are unlikely to be finished before the November presidential election.

Cameron Stewart is also US contributor for Sky News Australia