The escalating trade tensions between the US and its biggest trading partners, most notably China, have been at the heart of slowing global trade. It has already impacted economies all over the world, halting growth and pushing major economies toward recession. However, while there are certainly no real winners in a trade war, there are business opportunities. Even as some sectors of the Australian and New Zealand economies have felt the impacts of this global slowdown, others—specifically the mining industry—have pushed the country’s trade surplus to a record high.
As the global economy slows, finding and taking advantage of the kinds of opportunities that a trade war can create may be the key to success during otherwise difficult times. To do that, however, businesses need access to financing that can be relied upon, even during tough economic times. As it turns out, Fifo Capital’s trade finance facility is well suited to making the most of a bad situation.
Australian commodities are leading the charge
Australian exports of iron ore and coal are the largest contributor to the country’s unexpected record surplus, with other energy exports like natural gas also playing a part. China is investing in infrastructure in an attempt to prop up its own economic growth, and is purchasing vast quantities of Australian resources to do so. At the same time, Chinese imports of Australasian foods and animal products have risen more steadily since the first tariffs were introduced.
China will not be able to sustain infrastructure spending indefinitely, of course, meaning that this windfall for the iron and coal industries will only be temporary. Nevertheless, it offers Australia and New Zealand much-needed fiscal breathing room, and the necessary growth to avoid slipping into recession this year. China’s response to its own slowing economy meant a major opportunity for the Australian mining sector. In the same way, ongoing developments in all of the affected economies struggling to combat economic stagnation and circumvent trade barriers can create both short and long term opportunities for other industries.
Future tariffs may create new opportunities
Rising prices on Chinese goods inherently make competitors in other countries like Australia and New Zealand more competitive in the US market. As tariffs are increased, products made in developed economies like Australia and New Zealand will become more viable. This currently includes everything from agricultural products, to chemicals, to machinery.
So far, tensions between the US and China show no signs of abating, making it fairly likely that both countries will add even more new tariffs, while doubling down on existing penalties. Nearly all goods passing between the two countries will be affected by tariffs by the end of the year, with just some, such as medical devices and consumer electronics, protected by specific exemptions. Whether those exemptions will be maintained over the long term is unclear.
Australasian businesses can profit from Chinese imports
With American businesses losing access to low-cost Chinese resources, businesses in competing countries step in to gain a cost advantage. By using Chinese suppliers (who now have a strong incentive to cut prices even further to attract new customers) businesses in Australia, New Zealand and elsewhere will, all other things being equal, be able to create the same products at lower prices than their American competitors.
In this way, businesses seeking to compete with Americans on an international level gain an important structural advantage.
Seize growth opportunities when they arrive
In order to be able to take advantage of these kinds of opportunities, businesses need to keep track of the state of their industry on an international level, and be ready to make their move at the appropriate time. This can be particularly difficult from a financial standpoint during an economic downturn, when funding tends to be particularly scarce.
Because of this, it’s important to ensure that your business has financing options in place. A particularly useful tool in this respect is Fifo Capital’s trade finance facility, which allows businesses to access foreign suppliers without investing any of their own working capital. Specifically, it allows businesses to fully finance supplier shipments from abroad, including the initial deposit that suppliers typically demand before a shipment can be sent. Payment to the financier can then be deferred by up to 90 days, giving businesses the time they need to process, market, and sell the final product before making their own payment.
Overall, the escalating trade tensions between the world’s two largest economies promise difficult times for the smaller economies that rely on them. Despite this, businesses can still grow and succeed, provided that they take advantage of the tools and the opportunities available to them.