As Australia’s largest trading partner, China’s evolving trade policies at a time of heightened uncertainty relating to the COVID crisis is contributing to uncertainty about the outlook for exports.
Of Australia’s $150 billion of exports to China, I'm concerned about around $50bn, particularly relating to coal, agriculture and services exports.
As seen with the recent barley tariffs, agricultural exports to China – worth $13bn – are subject to China's particular trade positioning, in turn creating uncertainty over a range of other exports such as meat, wool, dairy, cotton, seafood and wine.
In terms of services, about $13bn relates to international students and about $5bn in tourism, both of which are being impacted by border closures.
Tourism, of course, has collapsed.
So services exports, which have contributed around $18bn to Australia, are under severe threat.
While I’m comfortable about Australia’s around $65bn of iron ore exports due to its strong position as the world’s largest supplier, $17bn of coal exports are more vulnerable due to China’s commitment to supporting domestic industries and more competition from supply elsewhere, such as Indonesia.
Looking ahead, there are two key factors around how the trade story is going to evolve over the next few years.
Firstly, the impact that COVID-19 downturn has on global demand, and secondly, China's policies, both trade and internal industry policies.
For now, the main focus for risks should be around $50bn of our $150bn in exports to China.
This material contains general commentary, and market colour. This material does not constitute investment advice. This information has been prepared without taking account of your objectives, financial situation or needs. We recommend that you seek your own independent legal or financial advice before proceeding with any investment decision. Whilst every effort has been taken to ensure that the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties. The ultimate outcomes may differ substantially from these forecasts. Except where contrary to law, Westpac and its related entities intend by this notice to exclude liability for this information.
William (Bill) Evans is Westpac’s economic spokesman and is responsible for all of our economic research. In 1991, Bill joined Westpac as the Chief Economist and Head of Research. A graduate of Sydney University (BEc. Hons I and University Medal) and the London School of Economics (M. Sc.), Bill has worked as Research Manager for the Reserve Bank of Australia and as a Treasurer at the Commonwealth Bank of Australia. Bill travels frequently, advising Westpac’s customers on the Australian economy and financial markets.
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