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Australia untouched, but US-China trade escalation expected to hurt wool

by Terry Sim, 21 September 2018
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Wool market analyst Chris Wilcox.

ESCALATION of the growing China-American trade war will hurt the global wool industry, although no direct impact on Australia’s raw wool exports with China is expected at this stage, leading wool market analyst Chris Wilcox said today.

Australia exports about 270 million kilograms of wool to China annually, valued at about $3 billion, and US imports of wool clothing from China were valued at $1.25 billion in 2017.

Mr Wilcox said China’s wool textile industry is concerned about the tension between the country and the United States and the ramping up of tariffs.

Previous tariffs imposed by the US on Chinese imports have already affected non-wool carpets. However, raw wool, wool fabric and woollen blend carpets are included on the list of Chinese products affected by the US imposition of a 10 percent tariff on $200 billion worth of Chinese goods from September 24, increasing to 25pc by the end of the year.

China has responded by imposing a 10pc tariff on $60 billion of US imports, despite US president Donald Trump threatening tariffs on an additional $267 billion worth of imports if China retaliates.

Mr Wilcox said the US imports mostly woollen apparel products from China and not much greasy wool or top, yarn or fabric.

“But with Trump threatening another batch – if he puts tariffs on the additional $267 billion in goods that will include everything, with very little left that China sends to the US that won’t have an import duty on it.

“It will be everything,” he said.

“At the moment, the tariff to date is on 44pc of China’s exports to the US, but if they impose that additional round, the fourth lot, that will be everything basically, and that will hurt wool, no doubt.”

Mr Wilcox said there is no reason for China to directly impose punitive tariffs on Australia’s wool exports into the country. However, any impact of the trade tensions and tariffs on the Australian wool industry could come from their effect on economic growth and global confidence.

“In these kind of trade wrangles and dispute there is collateral damage and often that is to countries that have had nothing to do with the dispute.

Any wool industry impact is likely to come from lower economic growth and damage to confidence, he said.

Mr Wilcox said that had already been seen in some commodity and equity markets.

As the executive director of the National Council of Wool Selling Brokers of Australia, Mr Wilcox gave a report on the recent Nanjing Wool Market conference in the body’s September newsletter.

Mr Wilcox said that Mr Sun Huaibin of the China National Textile and Apparel Council noted that China has also slapped a high tariff on imports of US cotton. China is the largest importer of US cotton, importing about 1 billion tonnes a year. The US cotton imports makes up about 10pc of China’s cotton usage. Mr Sun Huaibin said that China will buy cotton from other sources, notably from Australia, and the eventual cost of the high tariffs imposed by the US and by China on US cotton will be translated to the final product. Mr Wilcox reported that Mr Sun Huaibin said he did not know where the trade dispute would end up, but that the Chinese textile industry needed to be prepared for the worst.

Mr Sun Huaibin said that if the escalation continues as seemed highly likely then:

  • Some orders to China will move to south-east Asian countries.
  • Some Chinese businesses will move out of China to south-east Asian countries and to the Belt and Road Initiative countries.

Mr Wilcox said the escalating trade dispute between China and the US is the key risk and challenge facing the wool industry in the next twelve months.

Reader's Comments


Comment
  • Chick Olsson September 24, 2018

    What nonsense… a massive short supply of wool will only boost prices.

  • John Buxton September 24, 2018

    Mr Olsson’s comment shows that he does not understand that the wool market is demand-driven, not supply-driven.
    The world does not need wool. If it disappeared, life would go on as normal and wool growers would be the only ones shedding tears. I agree with Mr Wilcox; trade disputes are a big risk to our prosperity.

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