China truly has been the goose that lays golden eggs.
Our economy has prospered heavily off of the Middle Kingdom’s rise to power. There is a reason that they’re our number one trading partner.
Now though, it appears the goose is unwilling to play ball.
China’s latest tariff threats have put local industries on notice.
Barley was the first product in the firing line, with a crippling 80% tariff likely to occur. Then came the ban on some Aussie beef.
It was the last thing either industry needed in the midst of a pandemic. But, like it or not, they’re merely pawns in an escalating diplomatic nightmare.
Could this be the end of Sino–Australian relations?
War of ideals
As for why China decided to seemingly betray us so suddenly, well there are a few reasons.
The fact of the matter is Australia’s relationship with China has been going downhill for a while now.
ScoMo, whether you agree with his stance or not, isn’t afraid to confront China. A fact that has been made apparent with his recent calls for an investigation into China’s handling of the coronavirus.
Unfortunately, this issue seems to have been the straw that broke the camel’s back. China, riled up by these calls for an investigation, is now lashing out. Leaving many of our farmers to suffer the consequences.
And this could just be the beginning.
We saw how far the US–China trade war went. Hell, if the coronavirus hadn’t happened, it’d probably be even worse right now.
Whether Australia can stop things from spiralling out of control will be the key question. Especially for industries that have yet to be impacted, but rely heavily on Chinese demand. Both mining and baby formula come to mind.
Hopefully it doesn’t come to that, because if it does it could decimate even more of our economy.
Burnt bridges
Where all of this ends, no one knows.
Perhaps it all blows over in no time, or perhaps it damages the relationship forever. It could go either way, and will depend on the response from both nations.
One thing’s for sure though, this is a wakeup call for local businesses. They are finding out the hard way that putting all your eggs in one basket is a risky strategy.
It would appear that the only way forward is to diversify. Finding ways to rely on more than just Chinese demand.
That would naturally be the best course of action. Giving businesses the flexibility to prosper from Chinese trade if it can be salvaged, but also an alternative source of income in case it fails.
At the end of the day though, that is far easier said than done.
So, while I don’t expect we’ll have a complete decoupling from China — not yet anyway — we do need to change tactics. Our economic future may be depending on it…
For investors this is particularly important.
If we see a full-blown trade war erupt between Australia and China, watch out. Certain industries and certain stocks will likely take an absolute pummelling. Perhaps even the whole market itself.
That’s why you need to be prepared to protect your wealth: Finding ways to protect your money in the midst of not only a pandemic, but also a possible trade war.
Fortunately, one of the best ways to do this is with gold. An asset that has stood the test of time as a safe haven for investors. But don’t take my word for it, listen to what financial guru Jim Rickards has to say about it in this free report.
It could be your best bet to shelter yourself from all the market madness right now.
Regards,
Ryan Clarkson-Ledward,
For The Daily Reckoning
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