The announcement by the Trump Administration last week that the US will impose a 25% import duty (aka tariff) on US$50-US$60 billion worth of imports from China threatens to start a trade war. This would impoverish the economies of all countries involved, most particularly the US. It is very poor timing, given that the US economy is now growing at a healthy clip (fast enough for the US Federal Reserve to again lift interest rates this week) and economic growth in the European Union is picking up. The much stronger economic growth is one of the key reasons for the Merino wool price Supercycle the Australian wool industry is now enjoying (see the Weekly Newsletter of 9th February for details).

A trade war will be bad for the wool market, even if there are no products directly related to wool and wool clothing on the list. It will slow economic growth in both the US and China (and elsewhere), affecting demand. There may also be currency effects which will hurt wool. While the $A fell on the news of the new import duties, in the longer run the US$ is likely to fall against the A$ as a result of a trade war between the US and China, pushing up the price paid in US$ for Australian wool. The announcement of these tariffs on imports from China and the possibility of China retaliating, leading to a trade war, could be the trigger for a downturn in the current Merino price Supercycle.

Further details including a table showing the downside the downside to the Merino Supercycles in the past 20 years and the context of the decline from each Supercycle are provided in the full version of the NCWSBA Weekly Newsletter, available to NCWSBA Members.