Nobody wins a trade war as China discovered in its trade dispute with Australia between 2020 and last year, and which the U.S. is most likely to discover in its tit-for-tat tariffs exchange with Mexico and Canada.
The Australia vs. China situation, which blew up over China’s anger at being blamed for causing the Covid 19 pandemic, is a mirror image of what’s happening in the U.S. vs. Canada and Mexico.
Trade swings both ways
The difference with the current outbreak of trade tensions is that the countries involved are long-term friends.
In Australia vs. China there was a simmering history of antagonism and a mismatch in size which gave the dispute a David vs. Goliath appearance with China expected to easily frighten Australia into submission.
It didn’t work out that way, and while uncomfortable for some sections of the Australian economy China discovered that there were two Australian exports it needed and Australian exporters were quick to open new markets for everything else on China’s list of banned Australian products.
Iron ore and coal, essential for China’s steel industry, could not successfully be replaced. Iron ore because two countries dominate global seaborne supply, Australia and Brazil. Coal, especially high grade metallurgical (steelmaking) coal, is an Australian speciality.
New Customers
Other exports banned by China or hit with high tariffs were snapped up by other countries. Mexico bought Australian barley for stock feed and beer production. Egypt and Saudi Arabia snapped up Australian wheat, while Japan and Hong Kong bought the wine and lobster China refused.
Farcically, most of the Australian wine and lobster landing in Hong Kong during the trade war made its way across the border into mainland China.
Coal too became a re-shipped product with Pakistan suddenly becoming a big importer of Australian coal which traders promptly rebadged and forwarded on to customers in China.
Australian coal was redirected during a trade war with China. (Photo by Saeed Khan AFP via Getty … [+]
Canada’s economy is a fraction the size of the U.S., but there is a fair chance that exporters there are reviewing how Australian businesses managed the breakdown of trade relations with China, not only surviving but emerging with new customers.
Canadian oil can be redirected into the global market, perhaps with some inconvenience but Australia found ways around China’s attempted embargo on coal.
Trucks and cars which are assembled on both sides of the Canada/U.S. border will be a challenge for both countries because of the integrated nature of the assembly process.
What Canadian business is likely to discover is that after the short-term pain of a major customer hitting the country with punitive tariffs a host of new markets will open led by Europe and Britain which have deep connections to Canada, and China which will soak up Canadian oil.
In time, as happened in Australia vs. China, both sides will recognise that they have gained nothing, but have raised costs for everyone.
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