Invest
China could ‘blow up’ US bond market in Trump trade war
Following claims Donald Trump would raise tariffs on Chinese exports, economists have predicted what the fallout of a US-China trade war would be for Australia and the global economy.
China could ‘blow up’ US bond market in Trump trade war
Following claims Donald Trump would raise tariffs on Chinese exports, economists have predicted what the fallout of a US-China trade war would be for Australia and the global economy.
During the US presidential campaign, Mr Trump touted his proposal of raising a 45 per cent tariff on all Chinese exports coming into the US.
Economist and senior fellow of think tank Per Capita Stephen Koukoulas told nestegg.com.au that if that tariff was implemented, China would fight back with their own economic measures.
“Of course the Chinese aren’t going to be passively allowing US tariffs go unanswered. Do they react with their own trade retaliation? They hold more than a trillion dollars in US government bonds, they can sell them and blow up the bond market, which would have pretty significant implications for the US economy,” Mr Koukoulas told nestegg.com.au.
“They have a managed exchange rate, they can set policy more easily than Trump can, and if their economy suffers, then I would think their reaction would be to weaken the yuan dramatically, and perhaps implement some other stimulus measures.”
If such a trade war does eventuate, it’s likely to have enormous consequences for global trade, and the Australian economy more acutely.
“The biggest threat to Australia would be a dislocation of global trade and the fallout from that. To the extent that there’s negative fallout for China in a US trade war then we would clearly get caught up in the backwash of that,” Mr Koukoulas said.
“China takes roughly a third of our exports, so we’re heavily dependent there, and we certainly don’t want our major trading partner having weaker economic growth because they will therefore demand less of our output and pay a lower price.”
Ultimately slower global trade would hurt Australia particularly, given our dependence on foreign investment and trade says HSBC chief economist Paul Bloxham.
“If US tariffs were to happen, it would slow down global trade significantly and China would respond with restrictions and tariffs of their own. If you add those two together, slower global trade would be an even higher downside risk, particularly for Australia,” Mr Bloxham said.
“We’re a small, open economy highly dependent on other countries for our growth and momentum. Thankfully, we’re mostly dependent on Asia and we’re highly dependent on China, so a lot of this will depend on how our relationship with China continues to grow.”
However a trade war between the two economic giants may have one silver lining.
“One of the responses you typically get from the Chinese to counteract weakness is to bolster fiscal spending on infrastructure, which of course leads to hard commodities like iron ore, coal, natural gas etc.” Mr Bloxham said.
“China is cutting back on their own domestic production of low-grade, high-cost coal and iron ore, and as they’ve been doing that they’ve been turning to the international markets and buying more of our better quality materials.”
Investment firm Instreet managing director George Lucas says we’re already seeing the effects of Trump in the region.
“China is already taking initiatives to protect trade in the region and the likely long-term outcome is for the Asia-Pacific region to become less reliant on US trade,” Mr Lucas said.
“There’s likely to be a lot of talk and plenty of action over coming months and years as China seeks to expand its influence and presence by adopting more liberal trade initiatives as the US digests and deals with the Trump anti-trade rhetoric.”
Howeve,r what is clear is that Australia will have to wait and see exactly what the fallout will be.
“We’ve got this whole issue unfolding, exactly how it pans out we don’t know, but China will not sit idly by while their markets suffer. It’ll take months to figure out how this play out,” Mr Koukoulas said.
Stock market
Is climate change the next big investment theme?
Investors looking to outperform the market are being urged to look at structural growth, with climate change likely to create the biggest investment opportunity since the internet, an industry expert ...Read more
Stock market
All Ords set for new record by February, analyst predicts
The Australian market is likely to reach a new record in the early months of the year, with a win on the health front likely to offset geopolitical issues, an analyst has stated. ...Read more
Stock market
Aussies flock to fixed interest and ETP products for stable returns
Investors seeking stability during the COVID-19 pandemic have turned to fixed interest and cash exchange-traded products, new research has revealed. ...Read more
Stock market
Emerging market equities gain traction in post-pandemic world
Emerging market equities are making a comeback as technology-savvy consumers flock to capitalise on new opportunities that the 2020 pandemic may have made too attractive to ignore. ...Read more
Stock market
Is it too late to start investing in market index ETFs?
With the Australian market recovering its losses since the pandemic began, nestegg asked an industry expert if it was too late for investors to begin their investing journey. ...Read more
Stock market
Is it time to buy reopening stocks?
Investors are being advised to look into stocks that could benefit from markets reopening, an analyst has stated. ...Read more
Stock market
Stocks to watch in 2021
Easing political uncertainty, new vaccine hopes, central bank’s willingness to do all it takes and more, and new stimulus packages are likely to act as tailwinds for investors, an analyst has said. ...Read more
Stock market
Australia’s October stock picks revealed
Australian retail investors piled predominantly into high-growth industries such as electric vehicles stocks, cloud computing and recent third quarter IPOs during the month of October, new research ha...Read more
Stock market
Is climate change the next big investment theme?
Investors looking to outperform the market are being urged to look at structural growth, with climate change likely to create the biggest investment opportunity since the internet, an industry expert ...Read more
Stock market
All Ords set for new record by February, analyst predicts
The Australian market is likely to reach a new record in the early months of the year, with a win on the health front likely to offset geopolitical issues, an analyst has stated. ...Read more
Stock market
Aussies flock to fixed interest and ETP products for stable returns
Investors seeking stability during the COVID-19 pandemic have turned to fixed interest and cash exchange-traded products, new research has revealed. ...Read more
Stock market
Emerging market equities gain traction in post-pandemic world
Emerging market equities are making a comeback as technology-savvy consumers flock to capitalise on new opportunities that the 2020 pandemic may have made too attractive to ignore. ...Read more
Stock market
Is it too late to start investing in market index ETFs?
With the Australian market recovering its losses since the pandemic began, nestegg asked an industry expert if it was too late for investors to begin their investing journey. ...Read more
Stock market
Is it time to buy reopening stocks?
Investors are being advised to look into stocks that could benefit from markets reopening, an analyst has stated. ...Read more
Stock market
Stocks to watch in 2021
Easing political uncertainty, new vaccine hopes, central bank’s willingness to do all it takes and more, and new stimulus packages are likely to act as tailwinds for investors, an analyst has said. ...Read more
Stock market
Australia’s October stock picks revealed
Australian retail investors piled predominantly into high-growth industries such as electric vehicles stocks, cloud computing and recent third quarter IPOs during the month of October, new research ha...Read more
More articles
Website Notifications
Get notifications in real-time for staying up to date with content that matters to you.
