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Opinion – Andrew Hudson
The Federal Budget 2019 was formally released by the Federal Government on 2 April 2019. However, in an election year, the Federal Government took the unusual path of confirming that the government would not be seeking to pass new legislation implementing that Budget in the remaining Parliamentary sitting days. Instead, the Budget legislation would be left only to pass if the government is re-elected in the next Federal Election which is likely to take place in May 2019.
The Budget was largely positioned to appeal to business and individuals through additional funding, especially for infrastructure spending and additional income tax and other relief for low and middle-income earners. The Budget did not include a prediction of returning to surplus in the 2019-2020 financial year but foreshadowed a return to a budget surplus for the 2020-2021 financial year on the assumption that the current Federal Government is returned to office and that anticipated changes to economic conditions would enable the delivery of that surplus. Clearly, the Federal Government is claiming that it is the most responsible financial manager and that the only way that voters would be able to secure the promised advantages would be to re-elect the Federal Government.
Unfortunately, there was little of surprise in the Federal Budget in the international trade and customs sphere as many of the Budget initiatives had been released before last night’s announcement. However, it is worth reiterating a number of items that did appear in the Budget.
- A reminder of the recent signing of the Australia-Hong Kong Free Trade Agreement (A-HKFTA) and the Indonesia-Australia Comprehensive Economic Partnership (IA-CEPA). The passage of the two Free Trade Agreements (FTA) (if they are passed by the new Parliament) would lead to some reductions in revenue collected from imports from those countries. It will be a real test of Parliament and its processes to see if these two FTA, together with the Peru Australia Free Trade Agreement, will move forward to commencement given the position of the opposition in relation to some provisions of those FTA.
- There is welcome news for those involved in export with the confirmation of certain additional spending initiative as follows:
- $68 million made available over three years from 2019/2020 to support exporters in particular additional funding for the Export Market Development Grant (EMDG) program. As readers would be aware I am a director of the Export Council of Australia and we have pressed Government on many occasions to increase this funding. This increase is welcomed and hopefully will lead towards additional funding for the program in future years in line with recommendations of Parliamentary committees.
- $29.4 million over four years from 2019 to enhance agriculture, including work on the reduction of non-tariff barriers to trade, and assistance with technical market barriers in export destinations.
- $66.9 million in funding over five years to enhance Australia’s engagement with near neighbours in the Indo-Pacific region of which a large amount is aimed at improving relationships with China on agriculture food safety and regulatory cooperation.
- Confirmation that while government proposes to proceed with the biosecurity imports levy announced in the previous Budget, the date for implementation has been changed from 1 July 2019 to 1 September 2019. There is currently a review of the proposed levy being undertaken, but it would seem that government has assumed that levy in its current form (or similar) will proceed regardless of the current review and work of the Federal Government’s Steering Committee.
- Significant increases in customs duty payable on tobacco imports. Readers would be aware of recent changes to proposed regulation for the taxation regime for tobacco including the requirements for permits to be secured before goods are imported and the requirements for import duty to be paid at the point of import. This removes the ability to place goods in bond and only pay customs duty once the goods are released from bond. This has been a contentious issue within industry and has been a subject of significant discussion during my recent forums with the Customs Brokers and Forwarders Council of Australia (CBFCA).
- An anticipated reduction in customs duty from imports of motor vehicles given that motor vehicles from many of our Asian trading partners are already free from duty due to our existing FTAs. This announcement therefore seems to anticipate the likely completion of the FTA with the EU which, as a central inducement would remove customs duty payable on motor vehicles imported from Europe (and maybe even Luxury Car Tax).
There is no reference to any additional funding for implementing wider brown marmorated stink bugs (BMSB) measures even though the program will expand in the next season. Similarly, there is no additional funding for single-window or other trade facilitation initiatives which have been a key feature of collaborative work between agencies of the Federal Government and the private sector. There was no additional funding for the Anti-Dumping Commission so the promised ‘toughening’ of regulation regarding trade remedies from both the current Federal Government and the Opposition will need to be managed by the Anti-Dumping Commission (ADC) without any additional funding. This may exacerbate the current days and uncertainties associated with investigations through the ADC.
The Federal Budget makes no mention of other initiatives such as additional benefits through the Australian Trusted Trader Program although that may not be unexpected as financial aspects of the program such as the deferral of the payment of customs duty and the other initiatives had been funded in earlier Budget announcements.
It would appear that the Federal Government has taken the position that there are no significant political benefits to be gained by additional expenditure in the customs and international trade portfolio and through the operation of its agencies in that area. We await, with some interest, the response by the Federal Opposition to be delivered tonight and other announcements as to policies from both the Federal Government and the Opposition to be made in the movement towards our next Federal Election.
Andrew Hudson is the Customs & Trade Partner at Rigby Cook Lawyers. ©Rigby Cooke 2019. Reproduced with permission. All rights reserved. This article was first published as Australian Federal Budget 2019 – Released. Sort of. Dated 3 April 2019 on www.rigbycooke.com.au.
A new report by Infrastructure Partnerships Australia and BIS Oxford Economics’ shows the goods travelling in the belly of international aircraft arriving and departing Australia are worth a massive $109 billion annually.
The 2019 International Airfreight Indicator, the latest report in Infrastructure Partnerships Australia’s data and measurement series, reveals that one in every five dollars of Australia’s traded goods travels via air.
“Every day, more than 550 international flights arrive and depart Australia, yet until now, we have been remarkably blind to the value, the type of commodity, and the economic contribution of goods that travel in the belly of these aircraft,” said Infrastructure Partnerships Australia chief executive Adrian Dwyer.
“The 2019 International Airfreight Indicator shines a light on a multi-billion industry that has historically gone unnoticed in our broader trade debate.
“The indicator shows that airports are crucial to our trade story, and the cargo transported beneath passengers is vitally important to airlines, airports and the Australian economy.
“Last year alone, $109 billion of international trade passed through Australia’s airports, with airfreight set to top $114 billion this financial year.
“Whilst airfreight only represents 1 per cent of Australia’s trade volume, it punches well above its weight in value.
“One in every $5 of Australia’s imports and exports travels via our airports – making the airfreight sector one of the largest value contributors to Australia’s trade position.
“In a period of heightened trade tensions and structural economic change, it’s critical that we use data like that presented in the 2019 International Airfreight Indicator to improve the way we plan, regulate and invest in our freight sector.
“Without useful data to examine and measure our freight sector we will be flying blind on our international trade.
“That is why we have called on Government to establish a dedicated freight body to independently measure and publish detailed analysis of the overall performance of our logistic and supply chain networks,” Mr Dwyer said.
Some of the findings:
- In FY2017-18, $109 billion of international trade passed through Australia’s airports, with more than 96 per cent of international airfreight passing through the four main capital city airports – Sydney, Melbourne, Brisbane and Perth.
- Whilst airfreight only represents 1 per cent of Australia’s trade volume, it represents 21 per cent of goods in trade value.
- The amount of goods flowing in and out by air is now 70kg for every person – a 60 per cent rise in the last five years. This reached a record high over FY2017-18.
- More than 80 percent of our airfreight is carried in passenger aircraft, with the balance carried in dedicated freight aircraft.
The Australian Government announced a biosecurity levy in the 2018 budget due to be implemented this July that is significantly flawed, according to a statement by fourteen transport and logistics industry associations.
In a collaborative statement, the associations urged the Government to remove it from the 2019 Budget.
The statement declared that the industry welcomes the Government’s recognition on the need for an Industry Steering Committee to better inform Government on improving the proposed Biosecurity levy scheme design.
This announcement is acknowledgement the current proposal is flawed and fails to recognise the damage the levy would do to the competitiveness of the freight supply chain, key export industries and the cruise sector, as well as the higher costs for consumers.
The statement continued to express the protection of our natural and agricultural assets is vital to this country from both an environmental and financial perspective. The industries represented in this statement are part of Australia’s biosecurity system and take their roles seriously. Which is why we believe in impactful and informed solutions to strengthening Australia’s biosecurity system.
The associations expressed their main concerns as:
- The rushed nature of a tax designed without fully understanding the potential for far-reaching economic consequences;
- Additional and unnecessary costs – particularly to Australia’s tourism, manufacturing, agriculture, mining, energy and construction industries;
- Flow-on costs to consumers;
- Confusion as to why a new biosecurity tax is required over and above the Australian Government’s biosecurity charges that are currently in place for sea-freight (extensively reviewed in 2015-16) and the passenger movement charge for the cruise sector;
- That a biosecurity risk assessment and regulation impact statement has not been undertaken by the Australian Government to inform the development of the proposed biosecurity tax;
- A lack of clarity on how the Australian Government would collect the proposed tax; and
- No guarantee that all revenue raised by the proposed new tax would be used to support Australian biosecurity measures.
We urge the Government to remove the proposed levy from the 2019 Budget and provide a genuine opportunity to industry to help design a fair and equitable model that improves Australia’s biosecurity ability, concluded the statement.
The announcement was signed by Ai Group, Australasian Rail Association, Australian Aluminium Council Australian Chamber of Commerce and Industry, Australian Logistics Council, Cement Industry Federation, Cruise Lines International Association, Fertilizer Australia, Freight Trade Alliance, Gas Energy Australia, Manufacturing Australia, Minerals Council of Australia, Ports Australia and Shipping Australia Limited.
Australian exporters are riding the global e-commerce wave into new international markets, with plans to invest in online marketing and the workforce to optimise this opportunity. Research from the 15th DHL Export Barometer 2018 shows that export confidence among Australian exporters is at an all-time high – a new record since the study began in 2003.
E-commerce continues to dominate the agenda – the DHL Export Barometer 2018 shows that 61% of exporters reported favourable growth in actual orders over the past 12 months, the highest record in the last decade. 75% of them also expect to record an increase in international sales over the next 12 months, a rise of 8% from last year’s result.
Commenting on exporters’ confidence in the international export market CEO and senior vice president for DHL Express Oceania Gary Edstein said: “This year’s positive sentiment among the majority of exporters is a significant sign that the Australian export market is close to peak performance. Australian exporters have demonstrated a real tenacity that sees them pursuing further expansion in the face of global political and economic developments. Undoubtedly, e-commerce has been a positive force for this continual growth, contributing significantly to the confidence of Australian exporters and equipping them with the platforms necessary to go global.”
New Zealand remains the top export destination and Asia Pacific markets hold promise
Australian exporters are continuing to find strength in historical trade partners, with New Zealand remaining the most popular export market at 66% (up from 61% in 2017).
JW Nevile Fellow in Economics, UNSW Sydney and Host of The Airport Economist Tim Harcourt commented: “New Zealand continues to be an attractive export market for Australian business, thanks to the close bilateral ties shared under the long-standing Australia-New Zealand Closer Economic Relations Trade Agreement. Among exporters who have been exporting for more than 20 years, 80% of them continue to show confidence in trade with New Zealand – a testament to the enduring strength of the Trans-Tasman relationship.”
North America comes in at second place at 54% with growth of 6% on 2017, followed by Europe (42%), and the UK (41%). This is consistent with the findings from the study last year.
In the last 12 months, Australian exporters have also looked beyond traditional trade partners, with a focus on Asia Pacific. China leads at 41% (compared to 6% on 2017), with other countries and territories following close behind:
- South East Asia at 38% (up 10% from 2017).
- Hong Kong at 35% (up 8% from 2017).
- The Pacific at 28% (up 4% from 2017).
- Taiwan at 22% (up 8% from 2017).
Australian exporters remain optimistic amid global political developments
Australian exporters remain unshaken in the midst of the current global political and economic environment, opting to remain mostly positive or neutral towards these changes and developments.
This year, close to half (49%) of exporters believe that US foreign and economic policies will have limited impact on their export orders in the next two to three years, but 21% of them are cautious about the impact of US and China trade tensions on their export business.
On the flipside, exporters are positive about the impact of the Trans-Pacific Partnership (34%), China’s Belt and Road initiative (27%) and emerging export technologies such as artificial intelligence and blockchain (31%).
Mr Harcourt commented: “What history has taught us is that political and economic events do come in peaks and troughs, and this may explain the record high level of confidence among Australian exporters despite these ongoing developments. They recognise that trade will inevitably continue, and there will be new growth opportunities to explore further. Australian exporters have developed exceptional skills in assessing their competitive position in the international market, adapting to regulatory changes and implementing innovative strategies to take on new challenges.”
E-commerce continues to drive growth
This year’s research indicates that Australian exporters have decidedly taken to e-commerce as a selling channel, with 4 in 5 exporters (79%) now generating orders or managing enquiries online. Pure e-commerce businesses are also on the rise, evident from the 12% increase, over the last four years, in exporters who generate 100% of their export orders through online channels. Amongst them, exporters in the fashion sector are reaping the most benefits from e-commerce, with 68% of sales generated from online channels – higher than the average of 47% across all other sectors.
“E-commerce, with its global accessibility and affordability, has been the real driver for growth among the consumer goods sector and particularly for small businesses. Tools like e-commerce plugins and social media have provided small Australian businesses with the opportunity to reach the international market with relative ease and within a shorter set-up timeframe. The traditional barriers to international trade, such as finding local distributors and negotiating partner contracts, are significantly lowered when a business adopts e-commerce as a channel to directly reach the customer,” Edstein commented.
Exporters plan to tackle new markets with growth strategies
In the coming year, close to 50% of Australian exporters are seeing potential in new markets, making plans to expand:
- Europe tops the list as the most desirable new territory (17%) among exporters
- South East Asia (15%), the UK (11%), Indonesia (11%) and Japan (11%) follow in close stride
- New businesses which have been in operation for less than 5 years, are at the forefront of this trend, with 63% of them indicating that they plan to expand in the next 12 months
To support these growth plans, 39% of exporters are looking to increase their online marketing spending and looking into social media to enhance their marketing mix. More than half of exporters (58%) are employing social media to market their products. Among the favourites are Facebook (45%), Instagram (30%) and LinkedIn (20%). Newer platforms are also growing in popularity, with exporters beginning to introduce Instagram Stories (10%), Facebook Messenger (8%), WeChat (6%) and Snapchat (3%) into their marketing mix. Online marketplaces, such as eBay, are also gaining traction with 23% of exporters utilising them to generate orders.
Other growth strategies include an emphasis on fulfilment and delivery (37%), customer service (29%), website design (27%), and to make available more localised products (24%). 70% of exporters also indicate that they will increase employee wages to drive retention and 51% of them will make new hires.
Mr Harcourt commented: “Rising wages and the creation of new jobs are positive news for both Australian businesses, employees and the local economy. This year’s results show that growth on the international stage does bring investment back into the local economy, further strengthening the confidence of Australian businesses to continue with innovative strategies for international growth.”
The Trans-Pacific Partnership (TPP) is famous for being a major issue in the 2016 US election. One of the first acts of the new President Trump was to withdraw the US from the agreement.
Fast forward two years and the TPP (without the US) is set to commence on 30 December 2018. This free trade agreement (FTA) is a major reply to the protectionist trade policies of the US and also offers major benefits for Australian traders.
What is the TPP?
The TPP is a comprehensive FTA between Australia and 10 other countries: Japan, Canada, Mexico, New Zealand, Singapore, Peru, Chile, Vietnam, Malaysia and Brunei. It reduces customs tariffs on a range of goods, but also has comprehensive trade liberalisation provisions concerning trade in services, investment, the environment and labour laws.
Initially, the benefits of the TPP will only extend to Australian trade with Japan, Canada, Mexico, New Zealand and Singapore. This is because the other TPP members are yet to pass domestic legislation ratifying the agreement.
What are the benefits?
While Australia already has FTA with 7 of the 10 other countries, the TPP will bring immediate benefits. Those benefits are:
- For the first time, wide-ranging duty-free entry of goods into Australia from Canada and Mexico (saving of 5%).
- Increased access generally to Canada and Mexico.
- Significantly improved access to the Japanese agriculture market.
- Once ratified, generally improved access to Peru.
- Slightly improved access to Vietnam and Malaysia (once ratified by those countries).
With the TPP set to commence in late December 2018, there will be one round of tariff reductions on commencement and a second round on 1 January 2019, when year two of the agreement begins.
There are thousands of different outcomes depending on the particular product. Exporters need to be speaking to their trade advisors to find out the new duty rates for their products.
How do I use it?
If you are an exporter, you use the TPP to help your overseas clients import the goods at a lower duty rate. Like most FTA, under the TPP you will need to provide a certificate of origin. However, unlike other FTA, the certificates of origin under the TPP are much easier. There is no set form, the document can be electronic and the documents can be created by the producer, exporter or even the importer. This flexibility will increase the ease of using the TPP and for some exporters, reduce the costs.
This ease of use may mean that some exporters will use the TPP for trade that is currently covered by other FTA, such as the ASEAN FTA, which required government issued certificates of origin.
The ease of the TPP is appealing. However, the simplicity of the TPP could be its greatest risk for some traders. The benefits of the TPP only appeal if the goods satisfy the rules of origin. These are the rules that determine whether a good has sufficient connection to the TPP countries to qualify. In a self-assessment system the exporter takes a big risk unless it fully understands how rules of origin work. This risk can be managed, but it first needs to recognised.
If you plan on using the TPP you need to have a compliance e plan in place to avoid an unpleasant customs duty liability and potential penalties.
While there is no specific form that the certificate of origin must take, there are nine requirements that it must meet such as the inclusion of an HS Code of the goods and details of the parties (including their telephone number if known). These are mandatory requirements and the non-inclusion of one of these requirements will mean the TPP does not apply. The risk of missing a data field is normally low as the parties are using a prescribed template document. Again, there is no prescribed template with the TPP.
If you are planning on using the TPP, you need to ensure you are aware of all of the certificate of origin data requirements. We recommend either using a template created by a trade professional or having your own documents reviewed by a trade professional. We will be creating a template TPP certificate of origin for use by our clients.
The TPP is an agreement that businesses need to build into their long term strategy. While the current benefits will work for some traders, the future potential cannot be ignored. The countries that have expressed an interest in the TPP include the UK, Taiwan, Indonesian, the Philippines, Thailand and South Korea. The future of international trade is uncertain. However, for those countries that are looking to pursue an open trade agenda, the TPP will be a welcome home.
The TPP is an exciting opportunity and represents a reduction in the red tape associated with other FTAs. However, that lack of red tape does not mean there is no legal risk. The same obligations remain, however, it is for the traders to fully self-assess compliance with those obligations. This will mean that the need to work with specialist trade advisors and customs brokers will be heightened.
Russell Wiese is a customs and global trade specialist with a strong focus on helping clients proactively manage customs risks and opportunities. Russell helps importers, exporters, customs brokers and freight forwarders with customs concessions (including Free Trade Agreements), customs compliance, commercial agreements and resolving disputes between parties involved in international trade.
“Overall, this is positive budget for SME exporters” said Heath Baker, head of policy at the Export Council of Australia (ECA). “But it’s an incremental step forward, not a major leap.
“The government has rightly been a champion of trade and has trumpeted its achievements in signing a number of FTA”, said Mr Baker. “But if you want to grow trade, FTA are only part of the answer. This budget goes some way to addressing SME exporters’ other needs — but there’s still more to be done.”
The ECA welcomes the $20 million allocated to establish an SME export hubs’ program, as well as extending funding for the export growth centres. These programs should help many SME make the jump into international business and the ECA looks forward to seeing the detail.
DFAT’s economic diplomacy efforts receive a valuable injection of $15 million. This will go towards expanding FTA outreach, helping businesses better access DFAT’s economic and security insights, as well as developing a strategy to address the ‘non-tariff measures’ that stop businesses from exporting. Austrade has received a small boost, including $3.2 million to develop a new national brand. Future budgets will need to commit significant money to implementing this brand if it has any chance of succeeding.
“Australia’s offshore agricultural counsellors play an essential role in facilitating trade in food and agriculture, and so adding six new counsellors is a wise investment,” Mr Baker said. “The ECA also welcomed additional funding for initiatives to increase agricultural access in key markets.
“Getting goods out of Australia should become a little easier with additional infrastructure spending, including the $400 million Port Botany line duplication. There’s also a $10.5 million commitment to complete a business case for a ‘single window’ for international trade — but this is slow progress given that implementing a single window was a 2016 election commitment.
“Aviation security will tighten, which could complicate exporters’ supply chains. While exporters accept the need to ensure aviation safety, these measures need to be implemented in a business-friendly way, and supply chain participants will need adequate time to adjust.
“On the downside, the Export Market Development Grant (EMDG) is still underfunded. This blunts some of the good measures in place to grow exports, as new exporters will only be able to fully realise international opportunities if they invest in building their brands overseas. Underfunding EMDG means they will lack the certainty and confidence to fully commit to building their brands.”
The ECA’s 2018 trade policy recommendations highlight practical steps the government can take to increase the number of SME exporting and the value they export. You can read the ECA’s recommendations here.
Business is booming for Australian small businesses selling overseas, with these exporters reporting almost 20 per cent more turnover than their domestic-centric counterparts.
The findings, featured in Australia Post’s ‘Small Business Exporting’ insights paper, reveal that reaching into international markets can benefit small business with this group twice as likely to be planning for rapid expansion or to start a new business within the next 12 months.
But with just 27 per cent of all small businesses currently selling to overseas customers, including just 11 per cent sending parcels, the paper highlights the enormous opportunities to be found in traditional and emerging international markets.
Australia Post’s general manager segment development & marketing for business and government Rebecca Burrows said Australian small businesses should pay particular attention to Asian nations, where a growing middle class is embracing online shopping.
“It is estimated that there are more than 3.5 billion people across the globe who fit the middle class profile, and this number is expected to grow by 160 million every year until 2021. In China especially, these consumers are highly receptive to Australian goods – so it is worthwhile for Australia’s small businesses to seek a slice of this international pie,” said Ms Burrows.
“China continues to open up to trade and is rapidly increasing its level of imports. Indonesia, one of the 10 fast-growing ASEAN countries, is right on our doorstep and will soon be the fourth biggest economy in the world. By 2030, four of the five biggest economies in the world will be in our region in Asia.
“It is encouraging to see that small businesses who aspire to sell overseas are starting to recognise the value to be found in non-English-speaking markets. In fact, this group is five times more likely to consider selling into China than anyone else,” Ms Burrows said.
With the findings estimating that 60 per cent of small businesses currently selling online are yet to dip their toes into the international marketplace, Ms Burrows said there is huge potential for Australian brands to build a dedicated following.
“Small businesses doing well abroad use digital marketplaces and focus on niches to maximise cost-effectiveness, and to do that they are also more likely to use professional services – like translators – to connect to their target market and get better bang for their buck. The research found that successful small businesses are actually twice as likely to use marketplaces to reach online customers.
“Australia Post has recognised the importance of these marketplaces and has some exciting partnerships that can help, such as with the TMall marketplace with Alibaba and a new partnership with Lazada – making it easier to reach hundreds of millions of customers,” said Ms Burrows.
Data from the insights paper also indicates:
Of goods sold overseas by Australian small businesses:
- 46 per cent goes to USA
- 42 per cent goes to NZ
- 38 per cent goes to UK
- 35 per cent goes to China
- 11 per cent goes to Indonesia
- The most popular purchases:
- 24 per cent is women’s apparel
- 19 per cent is computer software/photographic equipment
- 18 per cent is men’s apparel
- 18 per cent is packaged supermarket goods
- 17 per cent is luggage or handbags
Business information analysts IBISWorld believes Australia stands to be caught in the middle of a trade war between the United States and China, as the world’s two largest economies launch increasingly retaliatory tariffs at each other.
While some local industries may become more exposed to risk as a result, IBISWorld believes Australia will also have the rare opportunity to seize export market share in both markets.
“Australia is one of the best-placed countries in the world to reap the gains of a trade war, due to our natural advantage of having ease of access to maritime trading with both major economies,” said senior analyst at IBISWorld Jason Aravanis. “In addition, Australia has beneficial bilateral free trade agreements with both China and the US, which provide more stability to international trade.
“While the trade war presents opportunities for some sectors, others will likely be at greater risk, as Australia is being caught between its largest trade partner and its largest investor – between the economy we rely on and the nation we look to for our security.”
Why USA and China matter to Australia
According to IBISWorld, the United States and China are both vital trading partners for Australia, but for different reasons.
China is Australia’s largest two-way trading partner, accounting for 17.7% of all imports into Australia and 29.6% of Australian exports in 2016-17. As such, the Australian economy is intrinsically tied to the performance of the Chinese economy. Many industries rely on Chinese demand for exports, or Chinese supply of imported production inputs.
The United States is Australia’s third largest trading partner, after Japan. However, the United States is the largest foreign investor in Australia, with over $860 billion invested in 2016. In contrast, China is only the seventh largest investor in Australia.
As China and the United States increasingly lock each other out of their domestic markets, certain Australian industries have the ability to seize market share.
“The Australian agricultural sector is likely to be one of the largest winners, as China has enacted tariffs on popular US food products,” said Mr Aravanis.
In 2017-18, China is expected to account for 25.1% of export demand in the Australian Wine Production industry, and this is forecast to grow in response to a 15% tariff imposed on US wines this month. Similarly, a 25% Chinese tariff on US soybeans will create massive opportunities for the Australian Grain Growing industry, particularly as China consumes about two-thirds of global soybean production each year. Rising demand for premium meats in Chinese households has led to strong growth in Australia’s Meat Processing industry, and this industry’s performance is expected to further improve as a 25% tariff is imposed on US meats. Other Australian agricultural industries are also likely to benefit, including fruit and seed industries.
According to IBISWorld, some Australian industries also have the opportunity to gain market share in the United States, however, Australian exports are likely to encounter greater competition from other countries in this market, such as Canada, Brazil, and the European Union.
“As the United States has imposed a 25% tariff on steel and 10% tariff on aluminium from China, the Australian Black Coal Mining and Aluminium Smelting industries may experience greater demand from US clients. In addition, US tariffs on Chinese chemicals, medicinal products, and electronic components are likely to create opportunities for Australian firms,” said Mr Aravanis.
Despite the positive gains for some Australian industries, others are likely to be negatively affected by a trade war.
“On a macro-economic scale, a downturn in either Chinese or US GDP growth is highly likely to undermine the growth of Australia’s GDP. This could lead to an increase in unemployment, as well as a sustained hit to business confidence as the stability of trade liberalisation in undermined,” said Mr Aravanis.
“Some industries are highly exposed to the risk of a trade war. Major mining industries such as the iron ore mining industry could be affected by a slowdown in Chinese economic growth, which would lead to far lower export prices and total demand. Tourism in Australia would also likely be negatively affected, as a hit to consumer confidence in both China and the United States would encourage consumers to postpone luxury expenses such as international holidays.”
Despite these challenges, IBISWorld believes the overall Australian economy is well placed should a trade war eventuate, at least relative to the conditions of other global economies. However, a trade war would likely lead to an overall decline in economic prosperity for Australia.
Tariffs imposed by China and the United States against each other:
|Soybeans and grains||25%|