The China and Australia Trade war could burn our Coronavirus recovery

If you think COVID-19 is the only major threat to Australia’s economy in 2020, think again. Increasing tension in our relationship with China has the potential to cost the country tens of billions of dollars in exports – with devastating impacts for ordinary Australians. DGI founder and CEO Dominique Grubisa explains how to prepare.

By now, just about every Australian understands the serious damage that COVID-19 has unleashed on our economy. The lockdown and the economic fallout of the pandemic have together cost the nation 600,000 jobs, forced countless businesses to close, and put us on a sure track for a brutal recession.

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But just when it seemed we had understood the scope of the challenges facing us, a major new economic threat is emerging. Tension between Australia and its largest trading partner, China, have escalated in recent weeks, putting at threat our diplomatic relationships and $150 billion in crucial exports. If unresolved, sectors from tourism and education to agriculture and minerals will suffer, with major impacts on the lives of all Australians.

China and Australia Simmering Tension

Even before the outbreak of coronavirus, tensions were simmering between Australia and China. The Chinese Government is keen to increase its presence in the South China Sea, and Australia’s support of US attempts to contain it has put us out of favour with Beijing.

But things have stepped up a gear during the current pandemic. In May, the Morrison Government infuriated China by calling for an independent international inquiry into the origins of COVID-19. Facing severe criticism for its handling of the outbreak from US President Donald Trump, Beijing took Australia’s stance as an attack, and responded through diplomatic and trade channels.

Warning of a massive boycott of Australian goods by Chinese consumers, Beijing announced it was placing tariffs of up to 80 percent on barley from Australia, in a move that could cost farmers $500 million a year. The Chinese Government next banned imports from four major Australian abattoirs who play a key role in our $3.5 billion beef export trade to China.

Prospect Of a Trade War

With Australia showing no signs of backing down, tensions between the two countries continue to escalate. A worst-case scenario would be the outbreak of a full-on trade war, with China seeing through with its threat of a boycott on Australian goods.

While China can, for the most part, find alternative suppliers for its imports, the impact of such a boycott on Australia would be catastrophic. China is Australia’s largest export market accounting for $150 billion annually – or about one third of our total exports. It represents a larger market than our next four trade partners combined.

The scope of products and services that China sources from us is staggering. Minerals and resources, including iron ore and coal, account for more than $110 billion in exports, while agricultural and seafood exports come in about $13.5 billion. The service sector, including education, tourism and business services is worth $100 million. China accounts for one third of our education exports and around one fifth of our tourism dollars.

Trade War Catastrophic Consequences

The fall-out of such a boycott would be felt by each level of Australian society. Combined with the impacts of COVID-19 and the deep recession, it would force thousands more out of work and cripple our economic recovery, perhaps permanently. The shock waves would be seen in a fall in property values, thousands of home owners defaulting on their loans, and increased personal and business bankruptcies. As we have seen recently in the United States, such tribulations can also lead to unrest in society.

Smart investors and people keen to protect their wealth will be monitoring the ongoing situation with China closely. They will also be exploring options for protecting their assets and ensuring that their economic situation remains secure. That way, they can survive any future crisis and continue to build wealth.

DG Institute has a range of wealth protection options to help you secure your assets now and in the future.

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