Commodity powerhouse Australia has warned that rising trade protectionism risks hurting global economic growth, adding its voice to a chorus of alarm just days before the U.S. and China slap duties on each other, risking a spiral of tit-for-tat tariffs.
“Trade tensions between the U.S. and its major trading partners have the potential to undermine confidence and hinder global economic output,” Australia’s Department of Industry, Innovation & Science said in a quarterly report on Monday. While global conditions are expected to remain firm, “the risks to global outlook seem skewed to the downside,” it said.
Australia is the world’s largest shipper of iron ore, a major producer of coal, as well as other raw materials including copper, nickel and gold, and its economic fortunes are linked to commodity demand, especially in China. Since taking office, U.S. President Donald Trump has sought to refashion the global trade order claiming it’s unfair and imposing tariffs on steel and aluminum. On Friday, a wave of American tariffs on billions of dollars of Chinese imports is due to take effect, with Beijing set to impose retaliatory levies.
The risks “seem skewed to the downside,” the department said in its resources and energy quarterly. Along with increased protectionism, it also highlighted tensions in the Middle East, and vulnerabilities of countries such as Italy and Argentina that “all have potential to hurt global growth.”
There’ve been a battery of warnings from governments as well as banks about the potential consequences from a full-blown global trade war, including for raw materials. Last week, Morgan Stanley said that the escalating global trade tensions “bring a risk of demand destruction across commodity markets.”
In a sign that the impending trade war is already hurting growth, China’s purchasing manager index readings for June showed a gauge of export orders tumbling into contraction. Last month, the Bloomberg Commodity Index dropped 3.6 percent to post the biggest loss in almost two years.
The rise in trade barriers spreads beyond the U.S. and China, the world’s largest economies. Canada and the European Union have introduced charges on some U.S. goods to respond to levies imposed by Washington.
As trade tensions ticked higher last month, Goldman Sachs Group Inc. Chief Economist Jan Hatzius wrote in a report that the concerns are likely to intensify even more. And Federal Reserve Chairman Jerome Powell said that U.S. companies are becoming so anxious about the prospect of a trade war, they’re postponing investment and hiring decisions.
