There are growing concerns about the potential escalation of the trade dispute between China and the United States on Western Australia's export-fuelled economy — the most vulnerable in the country to a rise in tariffs.
A new report by the WA Chamber of Commerce and Industry (CCIWA) said if the US lifted tariffs on Chinese goods in March, the value of exports and the demand for iron ore could fall.
WA is the biggest iron ore producer in the world, with China its biggest customer.
The chamber's warning comes as credit rating agency Moody's bumped up its outlook for WA's Aa2 rating from stable to positive, noting the WA Government's "strong fiscal resolve" and unexpected revenue streams from the Federal Government's infrastructure funding and GST top-up payments.
But the CCIWA's chief economist Rick Newnham warned the state's economy was the most at-risk in the country to the China-US dispute.
"A 1-per-cent change in the Chinese GDP growth equals a 0.5-per-cent change in our mining value activity here in WA," Mr Newnham said.
"So, we are all intrinsically linked to the Chinese economy and I think we should all be concerned of the impact of a trade war on the WA economy."
The report highlighted the significance of the Chinese trade relationship to WA.
"CCIWA estimates that Chinese consumers and businesses contribute around 30 per cent of WA's economy," it said.
"Currently, 47 per cent of our exports go to China and 53 per cent of WA's Gross State Product is made up by exports.
"Consumers and businesses from China also invest in education, tourism, property and new projects in WA."
Budget surpluses key to recovery
The WA economy is particularly vulnerable to changes in the international trade landscape, according to Treasurer Ben Wyatt.
"Ultimately WA, out of all the states in the nation, has a very strong exposure to trade, strong exposure to commodity prices and the level of the Australian dollar," he said.
"So we are the most exposed.
"We get the benefit when things are good but if there is a breakdown in what we've become used to in the rules of trade, for example, or any barriers to free trade, that will have an impact on Western Australia, a very negative impact."
Mr Wyatt said one thing the WA Government could do to prepare was maintain strong budget surpluses.
In its most recent mid-year review, the Government forecast a return to surplus in 2019-20.
