Economist Dr Yixiao Zhou from Curtin University in Perth has tried to predict what will happen in a US-China trade war. She modelled three scenarios: the US puts tariffs on Chinese goods; China retaliates in kind; and an all-out trade war where both countries extend the tariffs to imports from all nations.
In all three scenarios, she told SBS News, the global economy is hurt; global trade volumes contract, global GDP shrinks, and most countries’ per capita disposable income shrinks.
But if only the US raised tariffs, bilateral trade between China and the US would shrink by one quarter, but US per capita disposable income would actually rise by US$204 per person per year, based on the modelling Dr Zhou did with University of Western Australia Professor Rod Tyers.
What does it mean for Australia?
Dr Zhou calculates Australians would lose US$198 per person per year, among the worst nations hit after China, if China retaliated with tariffs against the US. It would be far worse if the tariffs applied to all countries.
A rise in global protectionism is generally bad news for Australian economy even if the tariffs don’t directly apply to Australian goods, because it is open and trade-exposed. If global trade volumes shrink, the manufacturing sector in China will shrink and therefore demand for Australia’s major exports – resources – shrinks too.
There could be benefits for Australian farmers if China started buying agricultural products from Australia (like soybeans) that it used to buy from the US.
But inflation and interests rates would rise globally with any major tariff imposition, so consumers in Australia, like elsewhere, would be hit with the double blow of higher-priced goods and heavier mortgage repayments, she says.
That is why foreign minister Julie Bishop has expressed hope that the US and China will take their dispute to the World Trade Organisation to be settled before it hits global standards of living.
“Free and open trade and investment is of great benefit to our country and the world,” she said when the tariffs were announced on June 16.
