The Turnbull government could be forced to choose between the military security of the US and the economic opportunity of China, experts warn, as President Donald Trump considers launching the first strike in a superpower trade war that could cause widespread damage to the Australian economy.
On Tuesday, a senior administration official told Reuters that Mr Trump was close to an announcement on China’s “unfair trade practices,” amid reports of a looming crackdown on intellectual property trade, sparking fears of a tit-for-tat raising of tariff barriers.
The confirmation followed a series of tweets from Mr Trump accusing the Asian power of earning billions of dollars a year from the US in trade while doing nothing to prevent the military threat from North Korea.
Chinese Vice Commerce Minister Qian Keming responded by describing trade and North Korea as unrelated. “They should not be discussed together,” he said, a week US Congress passed sanctions on Chinese businesses that trade with North Korea.
Michael Fullilove, Executive Director of the Lowy Institute for International Policy, addresses the National Press Club. Photo: Alex Ellinghausen
Analysts have warned Australia could become wedged between the US, its most important strategic partner, and China, its largest export market worth more than $90 billion a year.
“I think it is a risk and one I know that our officials are taking very seriously,” the executive director of the Lowy Institute Michael Fullilove told the National Press Club on Wednesday.
“So far, trade has been the dog that didn’t bark much during the administration [except for the US withdrawal from the Trans-Pacific Partnership], but I think we should worry about this because Mr Trump always goes back to his instincts on these questions.”
Dr Fullilove said Mr Trump appeared increasingly unhappy with Chinese President Xi Jinping.
President Donald Trump speaks to the media Photo: Evan Vucci
”He thought they would solve this security problem for the Americans when they were never going to do it,” he said.
The US has a $440 billion trade deficit with China, and manufacturing-employed Americans who voted for Mr Trump have been hardest hit by the trade disparity through the import of consumer electronics, clothing and machinery.
Chinese President Xi Jinping inspects a military parade on Monday. Photo: Xinhua via AP
US businesses are also becoming increasingly concerned about China’s “Made in China 2025,” policy, which aims to dominate trade in artificial intelligence, robotics and driverless cars.
“There may be a nice payback for him that at the same time appeals to his base,” said Dr Fullilove.
If Mr Trump was to direct the US Trade department to investigate China, as reported by Axios, it would signal a remarkable reversal of trade fortunes between the two countries.
In May, the two leaders agreed to end the 14-year ban on US beef imports into China and the sale of LNG gas usually reserved for US domestic use.
The 10-point deal was described as “herculean” by US Commerce Secretary Wilbur Ross and came only months after Mr Trump had repeatedly labelled China a currency manipulator.
Australia competes with the US in China on both LNG and beef and could benefit from a Chinese turn to both these sectors.
But any ensuing trade war, where both China and the US raise tariffs against each other and encourage consumers to purchase locally could have a significant effect on Australia’s trade fortunes with two of its largest partners.
“President Trump’s approach to the world runs directly counter to Australians’ instincts,” said Dr Fullilove.
“Mr Trump wants the United States to play a shrunken role in the world. Australia wants the United States to play a significant role in the world. Mr Trump is sympathetic to isolationism. Australians are inclined towards internationalism.
Monash business school lecturer Giovanni Di Lieto has warned China’s economic pull would put Australia in a difficult situation if the Trump administration continues its protectionist push.
He cites a study by the Brookings Institute that found China’s elites have long held the view that China was the natural Asian heir to the declining power of the US.
“Long-established research in political science and economics shows countries rise as they use asymmetric trade relations to turn economic dominance into a military dominance for geopolitical gains,” he wrote last year.
He said while China currently benefits from stable free trade, Trump’s trade protectionist agenda may push China towards hardline foreign policies.
“This would compel its co-dependent trading partners like Australia to soon make a clear choice between the US and China.”
By Eryk Bagshaw
Sydney Morning Herald