Australia Faces Economic Pain From Trump Win, Treasurer Warns

As the dust settles on the US election and the world prepares for Donald Trump’s return to the Oval Office in January, economists weigh in on how the Australian economy may be impacted. The Australian economy is vulnerable to trade wars that may occur under a Trump Presidency, AMP’s chief economist warns. "The return of Donald Trump to the US presidency brings the prospect of more US tax cuts and deregulation, but also more tariff hikes and trade wars and policy uncertainty," Shane Oliver tells Forbes Australia. "Australia is vulnerable to an intensification of trade wars. And this time around, Trump’s proposed tariffs are far bigger than what we saw in his first term."

Trump has proposed tariffs of up to 60% on Chinese goods and up to 20% on imports from the rest of the world, which could significantly impact Australia's resource exports, given China's significant demand for Australian commodities. A global trade war sparked by these tariffs could lead to a sharper downturn in global economic activity, posing a substantial risk to Australia's resources sector and property markets supported by strong employment and mining economies in Queensland and Western Australia.

Australian mining companies can employ several strategies to mitigate the potential negative impacts of a global trade war on their exports. Firstly, they can diversify their export markets, reducing reliance on China and other countries that may be affected by trade disputes. This can be achieved by exploring new markets, such as India, Southeast Asia, and Europe, to maintain demand for their products. Secondly, companies can invest in domestic processing and value-adding facilities to reduce the need for exports and create jobs in Australia. Additionally, they can engage in strategic partnerships with companies in other countries to share risks and opportunities, and lobby for favorable trade agreements to maintain access to key markets. Lastly, companies can focus on innovation and cost efficiency to improve their competitiveness in the global market, ensuring they remain profitable even in the face of trade disruptions.
Trump's immigration policies could also have significant implications for Australia's agriculture and hospitality sectors, which heavily rely on foreign labor. Trump has proposed mass deportations and stricter border security, which could lead to labor shortages in these sectors. This could result in increased wages and potentially higher prices for consumers, as well as reduced productivity and economic growth.

Trump's fiscal policies, such as tax cuts and increased spending, could indirectly impact the Australian economy through trade and investment channels. A stimulative U.S. economy may lead to higher interest rates, potentially forcing the RBA to follow suit, impacting Australian borrowers. Additionally, a stronger U.S. dollar could make Australian exports less competitive, while increased U.S. demand for imports could boost global trade, benefiting Australian exporters. However, Trump's protectionist trade policies, such as higher tariffs, could disrupt global supply chains and hurt Australian exporters, particularly in the resources sector.

In conclusion, Australia faces economic pain from Trump's win, with potential impacts on key export industries, property markets, and labor sectors. The Australian government must adapt to mitigate these potential negative consequences through targeted fiscal and monetary policies. This may involve implementing counter-cyclical fiscal policy, such as infrastructure spending, to boost domestic demand and offset any negative impacts on economic growth from a trade war. The Reserve Bank of Australia (RBA) could also use monetary policy to manage interest rates, ensuring they remain stable and supportive of economic growth. Additionally, the government could consider implementing measures to protect the property market, such as providing tax incentives for first-time home buyers or introducing measures to improve housing affordability.