Martin Conlon, head of Australian equities at Schroder, said Donald Trump’s tariffs on China pose risks for Australia, particularly if they weaken China’s economy and reduce demand for Australian exports .
Beyond the direct economic impact, Conlon said it could also weigh heavily on the Australian stock market.
“Moderate sentiment towards China, as well as low levels of affordability and affordability in housing construction, create the preconditions for depressed multiples for Australian stocks and undermine future returns,” he said. he declared.
“In an environment in which investors are increasingly willing to chase popular themes at incredibly rich valuations, it is perhaps understandable that most investors are happier to run with the crowd than feel alone. ”
Conlon said China, as a production-driven economy, typically responds to economic weakness by boosting production. However, without domestic demand to absorb this production, China is increasingly playing the role of middleman between raw materials and export markets.
The CBA echoed similar concerns, saying around a fifth of Australia’s exports to China are re-exported to other countries.
Economists at the Big Four banks said that while Australia is relatively insulated from the direct impacts of President-elect Trump’s tariffs, the greater risk lies in second-order effects on the Chinese economy, which could weaken demand for Australia’s key exports.
“A 60 percent U.S. tariff on all imports from China, all things being equal, would slow the growth of the Chinese economy. As a reminder, economic growth in China has already been disappointing in 2024,” the report said.
In the event of a downturn, China’s outsized influence in commodity markets could trigger a decline in commodity prices, posing the most direct risk to the Australian economy.
“A fall in commodity prices, particularly iron ore, would reduce Australia’s terms of trade and result in lower export earnings, government revenues and corporate profits,” the Commission said. CBA.
“The value of resource exports would fall significantly in the event of a Chinese slowdown. Australian private investment and consumption could also slow in response to falling export earnings.
Explaining the point, the bank said a gloomy outlook for raw materials locally could prompt miners to forgo investments to increase or maintain production.
In particular, mining investments are expected to stagnate during this financial year, after several years of gains.
Despite these risks, the ABC said Australia has several buffers to help protect its economy. Among them, the depreciation of the Australian dollar could protect local exporting companies. Additionally, the big four banks said a negative demand shock in Australia could prompt the Reserve Bank of Australia (RBA) to ease monetary policy.
“Australian exports to China are dominated by mining and energy products: iron ore, gas, coal, gold and other minerals. But Australia also exports services – mainly education and travel – and agricultural products, including wheat, wool, beef and grains, which could benefit from a consumption-led recovery plan. , said the CBA.
“Given this, and the ‘shock absorbers’ of the Australian economy of a flexible exchange rate and interest rates as well as a likely response from Chinese authorities, we consider that a significant slowdown in Australia is unlikely, but it is a headwind that must be taken into account.”
