Australia's 'insurance' against a US-China trade war

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Australia's network of free trade agreements with the United States and China should help protect local exporters, Trade Minister Simon Birmingham believes while cautioning a full trade war between the world's two largest economies would still cause trouble at home.

Following last week's meeting between Chinese and American officials aimed at heading off a trade battle, Senator Birmingham said there were positive signs that the two nations were finding common ground.

The Trump administration is threatening to impose additional tariffs on $US200 billion ($A277 billion) worth of imported Chinese goods from March 1. The US is looking to lift to 25 per cent its tariff on selected Chinese goods from 10 per cent.

The higher tariffs would come amid signs of a slowdown in China, which is Australia's largest export market.

Trade Minister Simon Birmingham says Australia's free trade deals will provide insurance against US-China trade battle

Trade Minister Simon Birmingham says Australia's free trade deals will provide insurance against US-China trade battleCredit:Alex Ellinghausen / Fairfax Media

Senator Birmingham, who is due to go to Switzerland later this month for the annual World Economic Forum leaders' meeting, said it appeared both the US and China were keen to find a way to avoid the planned increase in tariffs.

He said while Australia was an open, trading nation its trade agreements with both the US and China would be vital in case there is a breakdown in the negotiations.

Describing the FTAs as "significant", he said they would continue to provide access into the American and Chinese markets even if the talks between the two economic heavyweights broke down.

"They do provide a degree of insurance for Australian businesses operating in these markets," he said.

"For Australian exports, our global position has been insulated by the series of trade deals that Australia has struck over the past decade, from the US to Japan to Korea to China.

"That's lifted the preferential market access from around 20 per cent of our exports to more than 70 per cent of our exports."

Following the meeting, the office of the United States Trade Representative said America was still focused on gaining "structural changes" in China covering areas including technology transfer, intellectual property protection and "cyber theft of trade secrets".

The office added that the talks also focused on China's pledge to purchase more agricultural, energy and manufactured goods from the United States. Since the start of the trade war between the two, China's imports of US soy beans, for instance, have effectively stopped in a development that has hurt American farmers.

US soybean exports to China fell to zero in November on the back of the trade war between the two nations

US soybean exports to China fell to zero in November on the back of the trade war between the two nationsCredit:Daniel Acker

However, there were no signs of a major breakthrough in the talks in a portent to possible turmoil on global equity and commodity markets as the deadline for the increased tariffs gets closer.

Senator Birmingham said he was still hopeful a trade war would be averted as the talks continued.

While some exporters believe there may be benefits for Australia if the talks fell over, Senator Birmingham said there would be major economic dislocation that would be unavoidable.

"If we saw a full-blown escalation of a trade war between the US and China, there may be short-term opportunities for Australian exporters but that would likely come at the expense in the longer term of weaker sharemarket economic growth," he said.

"We realise that the nature of these discussions may see the US send more exports (to China) and increased Chinese investment from the US, but we continue to expect to see increased demand from China for Australian products."