While investment markets have noted increased risks of tariffs and trade tensions with the arrival of the Trump administration, professionals suggest it could have been more of a “campaign talking point”, relations between the United States and Australia potentially doing better than expected under the new president.
Speaking at the ASFA 2024 conference in Sydney this week, Thomas Nides, vice president of strategy and client relations at Blackstone and former deputy secretary of state, allayed concerns that President-elect Donald Trump would be in able to “simply dictate what he wants”.
While Republicans maintain majorities in the White House and Senate, they hold a slim majority in the House “by two or three votes,” meaning passing Trump’s economic overhaul “won’t be as simple let everyone think so.” he said.
Nides also pointed out that Trump left office with about $350 billion in tariffs in place on Chinese goods, which continue to exist under the Biden administration.
“So the question is, how much more will President Trump do? What part is reality, what part are words? I don’t think we know,” he said.
According to the investment official, the president-elect is “much smarter” than previously thought and is likely fully aware of the economic challenges that could arise from increased tariffs.
“I think President Trump is much smarter than we on the other political side give him credit for. He is hypersensitive to middle-class America and he will understand the impact that has. But ultimately, the proof is in the pudding. Executing this kind of thing is much more difficult,” he said.
Also speaking at the ASFA 2024 conference, Willis Sparks, director of global macroeconomic consulting at political risk consultancy Eurasia Group, noted that tariffs on China would likely persist, although at a lower level than the 60% previously mentioned during the Trump campaign.
“I wouldn’t worry too much about the 60 percent, I think that was a campaign talking point, but there are going to be tariffs on China again,” he said.
In particular, he suggested that markets could face two very different scenarios in terms of China’s future role in the global economy, given its weakened position and sluggish economic growth in recent years.
“The first is an all-out trade war. What if the United States, the Trump administration, just said, “We’re going to break these guys while we have the chance?” They’re economically weak right now, we’re going to isolate them further,” Sparks said.
Alternatively, a U.S.-China deal could be brokered by none other than Elon Musk, who has become a prominent member of the Trump administration, according to Sparks.
“Elon Musk obviously has big financial interests in China. Tesla is competing for market share in China, it has all kinds of artificial intelligence projects,” he said.
“It shouldn’t surprise us if, after a few months or even a year, while Donald Trump appears to be waging war on China, there is a major deal that is actually good for the global economy, good for China and good for the global economy.” the United States.
Ultimately, “enough composure” will likely prevail to reduce the 60% tariffs on China, he said.
Reflecting on the outlook for the US-Australia relationship under the new president, Sparks noted that Australia holds a “great advantage” over many of its global peers.
“Donald Trump, to my knowledge, has never publicly mentioned AUKUS. If you think AUKUS serves the Australian national interest, then Donald Trump’s lack of interest in AUKUS is a good thing,” he said.
In contrast, Trump tends to approach allies with “outrageous” statements and “exorbitant demands,” Sparks said, in order to get a deal on his terms.
“I don’t think Australia is immune to that, but again, the United States has a trade surplus with Australia, so from Donald Trump’s point of view, that’s a big advantage ” he said.
“I honestly think that when it comes to the most disruptive policies, Trump will probably focus on Europe, on NATO, on Mexico and Canada, and on a renegotiation of the Free Trade Agreement North American. »
Last week, Treasurer Jim Chalmers revealed that Treasury’s analysis of US election scenarios suggested Australia could do well under Donald Trump’s policies in the short term, although he expressed doubts concerns about the long-term impact.
Previously, Treasury Secretary Steven Kennedy confirmed that Treasury modeling highlighted major knock-on effects for Australia in the event of a Trump victory, particularly if US tariffs were to rise sharply.
Speaking at a Senate budget hearing, Kennedy said: “In general terms, imposing trade restrictions such as tariffs generally result in lower growth and higher inflation. »
“The implications for Australia are more about growth because of the implications for China, of course, and their demand for our products,” he added at the time.
