Although Donald Trump’s recent social media announcement is unlikely to have an immediate impact on Australia, Stephen Miller, market strategist at GSFM, warned that in the long term the move could worsen global trade tensions , potentially weakening global economic activity.
Last week, Trump announced plans to sign an executive order in January imposing 25 percent tariffs on goods from Mexico and Canada, as well as additional 10 percent tariffs on imports from from China.
However, Miller noted the immediate impact on Australia was expected to be “relatively small”.
“Until we retaliate, these actions in themselves should not impact the prices of the goods we import from anywhere else.”
But he stressed that any negative impact on the Chinese economy, which receives a large part of Australia’s exports, would not be “helpful”.
Jun Bei Liu, portfolio manager at Tribeca Investment Partners, believes Trump’s recent announcement speaks to his broader intentions for the markets. She explained that while higher tariffs on Chinese goods were expected, the inclusion of Canada and Mexico was unexpected and added uncertainty to global trade.
Liu pointed out that many Australian businesses rely on Chinese manufacturing and that while Australia may not face direct impacts from the tariffs, the consequences for Australian businesses exporting to the United States could be important. This could increase costs for Australian businesses that rely on Chinese manufacturing.
She also highlighted a growing trend of companies diversifying their operations to other countries, such as Indonesia and Mexico, as a strategy to mitigate risks associated with global trade uncertainties.
She highlighted the uncertainty that exists in the market over whether these additional 10 percent tariffs on Chinese imports will be the end result.
“His offhand comments in the media often create a bit of doubt and fear. And I certainly think there could be more [tariffs] across Europe, so there is definitely more to come,” she said.
Long-term implications
Although the short-term implications of these tariffs may be relatively neutral for Australia, Miller warned that the long-term effects could be much more serious, given the high risk of global trade wars.
As a small, open economy, Australia would be particularly vulnerable to wider trade wars, with potential disruptions to exports and supply chains.
“This will lead to lower economic activity in Australia, lower employment growth and probably, in the long term, lower inflation, and it will mean interest rates will be lower than they would otherwise be ” he said.
“There is perhaps a temptation to see this as good news, when it is not good news. [and] the only reason interest rates will fall is because the global trade war will cripple Australia’s economic growth.”
