03 Feb 2017
Since then, the US has reaffirmed plans for a border tax and indicated its withdrawal from the Trans-Pacific Partnership (TPP).
" With continued policy ambiguity, volatility is likely to remain high in commodity markets."
Graham Turley, Managing Director Institutional Australia, ANZ
Considering US trade with China in 2016 was around $US104 billion, the US reassessment could create challenges as well as opportunities for Australian business sectors.
So which sectors are facing the biggest shakeup, and how should they respond? From our perspective, there are two key industries facing change: resources and agriculture.
Following the US’s withdrawal from the TPP, concerns around existing global trade agreements and the free flow of commodities are bound to arise.
Protectionist policies have already roiled commodity markets (such as Indonesia’s ban on raw material exports).
Trump has also expressed his desire to speed up America’s energy independency by encouraging the development of domestic resources.
If successful, this would ultimately be negative for oil and coal prices and Australia. Despite an initial surge in industrial metals as investors looked at the impact of Trump’s infrastructure plan on commodity demand, this is likely to be mitigated by his vision to utilise American steel.
So far in 2017 we have seen a sharp rise in commodities almost across the board. With continued policy ambiguity, volatility is likely to remain high in commodity markets.
Of all the US industry groups, the agri sector has stood out as a supporter of new trade agreements.
As such, US agri groups, particularly those from the beef and soybean sectors, have been quick to express concerns at a proposed re-examination of NAFTA and the TPP withdrawal which could cost US agriculture around $US4.4 billion per year.
For the Australian beef industry, while the new playing field will undoubtedly provide new opportunities, strategic scenario planning and forward-thinking diplomacy will be a necessity.
If China chooses to respond to Trump’s direct threat of punitive tariffs Australia may well find increased market opportunities.
Balanced against this, however, is the fact the US itself remains one of Australia’s largest beef importers and it’s in Australia’s interests to maintain strong relations with one of its key markets.
Other regional agri sectors could also see increased opportunities, though each with different issues to address.
For dairy, Chinese and regional Asian markets are tipped to remain strong. The impact of any trade disruption between the US and China is likely to be limited, with the major competition coming from the EU.
A key challenge for exporters will be to adapt to China’s new regulations on infant milk formula (IMF), which come into effect at the start of 2018.
The changes, ostensibly aimed at increasing food safety, will directly require IMF manufacturers to gain new registrations for their products, be more open about their processes, and consolidate their product ranges.
Strategically, this will also create an impetus for the major dairy processors to create innovative new products, as well as exploring new markets outside China.
Regardless of sector, ambiguity and changes to trade relations will be consistent challenges for Australian businesses.
This will require great discipline in monitoring updates to trade policies and regulations and taking action quickly to mitigate any risks.
Graham Turley is Managing Director Institutional Australia, ANZ
The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.
03 Feb 2017
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30 Jan 2017