(Bloomberg) -- Australia has a record trade surplus that, on the surface, Donald Trump would admire.
The U.S. president likes it when exports outpace imports and uses trade balances to score the world’s winners and losers. But as Australia’s export cup runneth well over its imports, the country’s economy is sputtering toward the weakest fiscal-year expansion since a 1991 recession.
The lesson from Down Under: The link Trump likes to make between a nation’s trade balance and its economic strength is tenuous at best.
Sometimes it comes down to luck. Few could have predicted that the year would open with a deadly dam disaster in Brazil. That supply constraint combined with record steel production in China to send iron-ore prices soaring back above $100 a ton. Australia’s export revenue boomed as a result.
David isn’t pulling a fast one on Goliath here — Australia is simply selling China what it needs, at premium price.
Meanwhile, the Aussie economy is limping along at annualized growth of just 1.2%. If you removed the 1.6% population gain — driven by another Trump bugbear, immigration — it wouldn’t be expanding at all. So is it possible to say Australia’s trade surplus proves it’s a winner? Not really, based on a number of factors:
- In addition to the Brazilian dam disaster, a cyclone ripped through Australia’s mining heartland in March, disrupting shipments and sending iron-ore prices to the highest since 2014.
- Australia’s record surplus highlighted the nation’s connection to the parts of China’s economy benefiting from fiscal stimulus. The more roads, railways and bridges China builds, the more iron ore it needs.
- Yet Australia’s trade bonanza might be short-lived. Brazil’s Vale SA has been given the green light to restart some operations and a forecast from UBS Group AG suggests prices will sink back below $100.
Charting the Trade War
Traditional trade measures don’t reflect the real supply chain. A more accurate measure of trade and economic relationships involves not where a product is made, but where its value is added.
