Research firm Capital Economics said that Australia’s economy has been badly hit by escalating trade tensions with China, and it is possible that growth might “never return” to pre-virus levels even when the pandemic is over.
China, which is by far Australia’s largest trading partner, accounted for 39.4 percent of goods exports and 17.6 percent of services exports between 2019 and 2020, the firm said in a note seen by CNBC. According to its senior economist, Marcel Thieliant, GDP in Australia could contract even more if Beijing continues to pile tariffs on more Australian imports.
Earlier this month, Canberra launched a World Trade Organization probe into Chinese trade levies which were hiked beyond 80 percent last spring.
Goods and services that are already “in the firing line” are worth almost a quarter of Australia’s exports to China, forming 1.8 percent of its economic output, the research firm said. “That figure could rise to around 2.8 percent of GDP if China targeted other products for which it isn’t hugely dependent on Australian imports.”
Tensions between the two nations have ramped up in recent years, largely kicked off after Canberra banned Chinese telecoms Huawei and ZTE from its 5G rollout. Relations soured further after Australia called for an international inquiry into the origins of the coronavirus outbreak in April, prompting accusations from Beijing that Australian lawmakers were acting on marching orders from Washington.
According to Capital Economics, more restrictions by Beijing could come, including exports of gold, alumina (a type of material for industrial usage), and a “vast range of smaller items.”
“While Australia should be able to divert some shipments to other countries, the escalating trade war is another reason why Australia’s economy will never return to its pre-virus path even once the pandemic has been brought under control,” Thieliant said.
Overall, the country’s GDP could fall short of its pre-virus trajectory by about 1.5 percentage points at the end of 2022 while additional trade restrictions by Beijing could widen that shortfall further. The pain could be lessened, however, as “it’s possible that Australia will find other destinations for its exports,” the economist added.
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