SINGAPORE: Commodity powerhouse Australia delivered a double-barreled warning that rising trade protectionism will hurt global growth, adding its voice to a chorus of alarm just days before the US and China slap duties on each other, risking a spiral of tit-for-tat tariffs.
“Trade tensions between the US and its major trading partners have the potential to undermine confidence and hinder global economic output,” Australia’s Department of Industry, Innovation & Science said in a report on Monday. Hours later, that was followed by a blunt message from Trade Minister Steven Ciobo: “Escalating trade tensions, potentially, will harm global growth: of course there’s a correlation between global growth and trade volumes.”
Australia is the world’s largest shipper of iron ore, a major producer of coal, as well as other raw materials including copper, nickel and gold, and its economic fortunes are linked to commodity demand, especially in China. Since taking office, US President Donald Trump has sought to refashion the global trade order claiming it’s unfair and imposing tariffs on steel and aluminium. On Friday, a wave of American tariffs on billions of dollars of Chinese imports is due to take effect, with Beijing set to impose retaliatory levies.
While conditions are expected to remain firm, “the risks to global outlook seem skewed to the downside,” the department said in a resource quarterly. Along with increased protectionism, it also highlighted tensions in the Middle East, and vulnerabilities of countries such as Italy and Argentina that “all have potential to hurt global growth.”
There’s been a battery of warnings from governments as well as banks about the potential consequences from a full-blown trade war, including for raw materials. Last week, Morgan Stanley said that the escalating trade tensions “bring a risk of demand destruction across commodity markets.”
Trade Minister Ciobo, in remarks to reporters and businesses in Tokyo after a speech, urged Trump as well as others to keep their actions within the World Trade Organization framework. “We would look for opportunities to encourage the US to act in a WTO-consistent way,” he said, adding: “The same could also be said with respect to retaliatory actions that are taken.”
In a sign the impending trade war is already hurting, China’s purchasing manager index readings for June showed a gauge of export orders tumbling into contraction. Last month, the Bloomberg Commodity Index fell by the biggest loss in almost two years. On Monday, oil and metals prices dropped.
The rise in trade barriers spreads beyond the US and China, the world’s largest economies. Canada and the European Union have introduced charges on some US goods to respond to levies imposed by Washington.
As trade tensions ticked higher last month, Goldman Sachs Group Inc. Chief Economist Jan Hatzius wrote in a report that the concerns are likely to intensify even more. And Federal Reserve Chairman Jerome Powell said that US companies are becoming so anxious about the prospect of a trade war, they’re postponing investment and hiring decisions.