Australia is bracing itself for a massive $27 billion decline in income from two of its biggest exports – liquefied gas and iron ore – as Donald Trump’s trade war with China continues to escalate.
The outlook for some of Australia’s largest mining and energy companies has taken a turn for the worse since April, when the United States imposed steep tariffs on goods from China and other countries.
This has led to increased uncertainty and lower global growth forecasts.
Impact on Australian Economy
While Trump gave Australia a relatively low tariff rate of 10%, the country is still expected to feel the pinch as its biggest Asian buyers, particularly China, face higher US tariffs.
This could lead to a decrease in demand for Australian commodities, according to the Department of Industry, Science and Resources.
“Rising trade barriers – and uncertainty over how high these barriers will settle – have disrupted trade between the US and its major partners and caused businesses and consumers to adopt a ‘wait-and-see’ approach,” the department says in its latest export forecast report.
Falling Prices for Iron Ore and LNG
Australia is the world’s largest exporter of iron ore, and one of the top shippers of liquefied natural gas to countries in Asia.
However, prices for these commodities have been falling, and the revenue earned from them is now projected to decline more sharply than expected.
Iron ore earnings are set to fall by $20 billion – from $116 billion to $96 billion – within two years, while LNG is on track to fall from $60 billion to $53 billion.
Gloom Ahead for Australian Mining and Energy Sectors
The near-term outlook for Australian resources and energy exports has softened significantly as rising trade barriers hurt the world economy, according to the Department of Industry, Science and Resources.
In China, the top consumer of Australian iron ore, steel production levels are already weakening amid a protracted downturn in the nation’s property sector, reducing the profits of ASX-listed mining giants BHP and Rio Tinto.
A Bright Spot for Australian Exports
One bright spot for the nation’s export revenue is the surging price of gold, which has reached a record high of over $US3400 an ounce.
With prices tipped to remain above $US3000 an ounce, gold is set to overtake metallurgical coal as Australia’s third-biggest export earner behind LNG and iron ore next year.