What does the future hold? Predicting outcomes in global trade is often more an imprecise art than a science, as interwoven as they are with geo-political events. Current media attention on the protectionist war of words (and tweets) emanating from the US White House has made a clearer understanding even more necessary.
In a somewhat bizarre coincidence, the announcement of the conclusion of the latest Free Trade Agreement, the Comprehensive and Progressive Trans Pacific Partnership (CPTPP) coincided with a proclamation by US President Trump imposing tariffs on steel and aluminium products at 25% and 10% respectively. The extraordinary juxtaposition of mercantilism versus globalism aside, the insidious creep of protectionist sentiment has been a feature of the last year impossible to ignore. In an almost unprecedented case of doubling-down on campaign promises in the face of stiff opposition from advisers, including the dramatic resignation of Gary Cohn in early March as the top economic adviser, the US imposed up to AUD $77 billion in tariffs specifically targeting China, spooking financial markets and eliciting a defiant ‘fight to the end’ response from Beijing.
This rising tide of protectionist sentiment is likely to threaten exporters and cross-border businesses in unexpected ways, as nations use tariffs, or more subtle non-tariff barriers such as visa restrictions or new customs measures to protect their economies in a vain bid to assuage populist unease over foreign competition.
It’s very likely every reader of this article has recently purchased something online. Whereas once we would have visited a shop, the inexorable rise of online retail for goods and services is a phenomenon in and of itself, but closely linked to the growing dominance of the digital economy. This is exceptionally apparent in China, which by some analysis already accounts for over 40 percent of the value of global e-commerce, having risen from near zero ten years ago. The ability of Australian and New Zealand businesses to adapt their products, services, marketing and supply chains to thrive in this digital age may be a key determinant to their success or failure.
This shift in the global economic centre of gravity towards Asia is of particular importance to Australia and New Zealand given our geographic proximity. Tensions between the old economy and the new, magnified through the lens of changing economic dynamics between the East and the West can be seen in the current clash of values between the US and China.
Asian markets already make up a large percentage of both Australia and New Zealand’s two-way trade, and any change in access to them could have dramatic consequences, with flow on social impacts. Conversely, capitalising on the increasing investment and disposable incomes in the region arguably represent Australia and New Zealand’s greatest economic opportunity.
As rhetoric, threats and memoranda from the White House increase, largely directed at China for a domestic US audience, repercussions on demand from increased tariffs may be the expectation. However, transhipment by China and substitution from other sources, combined with increased US domestic production means any effects will likely be transitory. China as much as any other market stands to lose from escalating economic confrontation, so will likely temper its response with a healthy dose of pragmatism. In response to the US move, China unveiled a range of tariffs on US goods from horticultural products, pork and wine to aluminium and steel products. China’s Ministry of Commerce detailed a list, largely comprised of fresh and dried fruits and nuts on which it had proposed to levy retaliatory tariffs of 15-20 percent. For alternative suppliers such as Australia and New Zealand, a decrease in the competitiveness of some US agricultural products could provide additional market opportunities.
As nations whose economic prosperity rests on our ability to supply high-quality goods and services to global markets, Australia and New Zealand will continue to be exposed to the macro-level trends visible today, which are likely to impact the nature of the international trading environment for years to come. In an era of great transition, it is more important than ever for Australian and New Zealand businesses to maintain a state of vigilance, and be prepared to innovate and adapt.
If your business is currently exporting or considering trading internationally, you may wish to consider our suite of export focused services to see how we can help your business prepare for the future. Our range of services include Export Strategy planning, Australian Trusted Trader registration, Export Grant applications, Supply Chain Optimisation, Due Diligence and Customs Duty refunds for importers, to name a few.
For a friendly chat and to explore how we can help, please contact me directly, or through your local adviser.