US-China trade war, and what it means for the Aussie - NAB

 The National Bank of Australia is out with a research note on the brewing US-China trade war, and what its possible impacts on the AUD could be moving forward.

Key quotes and highlights

The research team at NAB pointed out that while China is handily the world's greatest producer of metals, Trump's metals tariffs in March had little effect, as the US is not a major importer of Chinese metal.

As noted, "reflecting the rapidly shifting policy position, President Trump threatened tariffs on a further US$100 billion of Chinese goods, following China’s retaliation to the initial US trade measures. This tit-for-tat policy response highlights the risk of escalation to a full scale trade war."

US trade strategy is largely inconsistent, with President Trump's first order of business after getting elected was to pull the US out of the TPP, then suggested the possibility of rejoining during his World Economic Forum speech, then recanting once again on Twitter. 

China's responses to US trade tariffs have been measured but consistent and targeted, and "the second wave of Chinese trade measures included tariffs on US soybean exports – by far the largest US agricultural export to China. The political dimension of this measure is significant as well – hitting rural regions that overwhelmingly voted for Donald Trump in the 2016 election."

US Treasury Secretary is currently in Beijing to begin trade negotiations, but the outcome remains unclear.

The Trump administration's "focus on the trade deficit overlooks the benefits of trade to US consumers – namely low cost consumer electronics. China’s dominance in many of these markets implies that tariffs will translate into higher prices for consumers, leaving them worse off."

NAB pointed out the good news for the Aussie on the trade war front: "the direct impact of the US-China trade dispute is limited for Australia – given that the bulk of Australia’s exports to China are consumed within the domestic economy", but also suggested that trade disruptions will impact financial markets, where volatility could hurt bystanders to the trade war.