How A Trump Presidency Will Impact Australia’s Economy

The Aussie Dollar

The election of Trump has also resulted in an early setback for the Australian dollar, which fell by 1.5 cents against the Greenback in the hours after Trump’s win.

On November 7, the day after Trump’s victory, the Aussie dollar fell to US66 cents—the lowest level since August.

It came after a fall in the price of gold, which was driven by a stronger US dollar, and expectations inflation and interest rates may remain high, or not fall as fast, under a Trump presidency.

RBA financial markets assistant governor Christopher Kent told a budget estimates hearing that Trump’s tariffs would potentially push the US dollar higher (and other currencies lower).

“We just don’t know how big and who they’ll be applied to, but it should push up the US dollar, because US customers will be buying less goods from the rest of the world, and they’ll need less foreign exchange, but it means less demand by the US for global goods,” he said.

Trade Tariffs

Which brings us to tariffs. Australia forged a free trade deal with the US some two decades ago, in which almost 97% of our imports are currently tariff-free.

Trump has long pledged a radical protectionist stance that would impose trade tariffs of between 10% and 20% on global imports, with a 60% tariff on China’s incoming goods. It’s worth noting that Australia narrowly avoided new tariffs on locally made steel under the first Trump administration.

Now experts warn that direct tariffs on imports into the US not only hurt Australia’s exports, but they may also spark a trade war between the US and China. China is Australia’s biggest trading partner—accounting for almost one-third of our two-way trade— which, as former US ambassador Arthur Sinodinos notes, puts Australia “in the crossfire”.

“If we have international trade wars, that will have an impact on global trade and investment,” he told the ABC.

“It will flow on to Australia because of the impact on the Chinese economy, if (Trump) is able to enact the full program.”

Economist Steven Hamilton from George Washington University said the economy is likely to be worse off under Trump.

“You can’t expect to put 10% to 20% tax on everything and expect inflation to go down,” Hamilton told the ABC.

“The tariffs are going to harm US consumers, they’re going to raise prices. They’re going to have flow-on effects for other countries.

“It’s also going to have flow-on effects to Australia through China: if you put a 60% tariff on Chinese goods, they are going to produce a lot fewer goods, and they’re going to want a lot less of (Australia’s) iron-ore.”

Will AUKUS Be Scrapped?

One of the big signature defence deals in recent times has been the AUKUS pact, a tripartite agreement between Australia, the US and the UK. Central to the pact is the provision of sovereign nuclear-powered submarines, including the transfer of Virginia class subs from the US to Australia.

Trump has a history of pulling out of multilateral agreements he deems damaging to the US—the Paris climate agreement, being the most notable in recent times.

Now some pundits are wondering whether the AUKUS deal will end up on the cutting-room floor, which wouldn’t be a problem for lobby group, Labor Against War, which has called on the government to dump the deal.

“It is completely untenable for Australia to continue in lock-step with a militarised US government led by an unstable president,” spokesperson Marcus Strom said.

However, Hockey believes not much will change in relation to Australia’s defence ties.

“Donald Trump sees Australia very favourably when it comes to issues like national security. I think that will flow through to AUKUS, that he won’t want to change the relationship with AUKUS,” he said.