Situation
Trade tensions between the US and China escalated over the course of 2018-19 and by the end of the financial year more than half of trade between the nations was subject to tariffs. The dispute contributed to a softening in manufacturing globally and elevated uncertainty regarding the economic outlook.
Approach
Given the trade tensions, Treasury prepared advice and released a research paper (PDF) reviewing the gains from trade, developments in global trade in 2018 and implications of the trade dispute for Western Australia under different scenarios.
Outcome
To date, the impacts of the trade dispute on the Western Australian economy have been limited. This is largely because the government in China has sought to offset the impact of the trade dispute with macroeconomic stimulus (such as increased infrastructure spending and tax cuts), which has increased activity in its commodities intensive construction sector. Increased demand in China, together with major supply disruptions in Brazil, have supported a sharp increase in the iron ore price and record export income. However, economic stimulus in China comes with risks as additional construction activity in the near term may result in lower construction spending in the future (to the extend it is brought forward) which could pose a risk to the State’s export and royalty income in the medium term.
