The re-election of Donald Trump as U.S. President last week has notable implications for the Australian economy, primarily due to his policies on trade, tax cuts, deregulation, immigration, and climate change. Dr Shane Oliver, Head of Investment Strategy and Economics and Chief Economist, AMP Investments, issued an analysis on the topic.
Here are some takeaways from his report and what it could mean.
Trade Policies and Global Tensions
A more protectionist U.S. trade policy, especially towards China, could indirectly hurt Australia’s economy.
Since China is Australia’s largest export partner, any U.S.-China trade tensions could reduce Chinese demand for Australian goods, like iron ore and coal.
For example, as indicated in the OECD study referenced, if there is a 10% reduction in global trade between major countries, this could see Australia suffer a 1.2% reduction in GDP.
Additionally, the Australian dollar could weaken if export demand declines, creating mixed results for exporters but challenging the broader economy.
Tax Policy and Competitive Pressures
Trump’s suggested corporate tax cuts of 15% could create pressure for Australia to lower its own taxes to attract investment.
If the U.S. becomes a more attractive investment destination, Australia may face reduced foreign direct investment and slower growth, potentially affecting tax revenue and the competitive landscape for Australian companies.
Impact on Key Exports and Industries
Australia’s resource-driven economy could face strain if Chinese demand for resources drops due to U.S.-China disputes.
Reduced global trade activity would also hurt profitability in mining and resources, key sectors for Australia. Adapting exports to alternative markets might be possible but would be challenging.
Immigration and Labour Market Impacts
Trump’s strict immigration policies could limit global labour mobility, reducing the pool of skilled immigrants to Australia. This would particularly impact Australian sectors reliant on skilled labour, like healthcare, technology, and education, potentially slowing growth in these areas.
Climate Policy and Renewable Energy
Trump’s rollback on climate commitments could weaken global momentum towards renewable energy.
Australia, committed to net-zero goals, may face challenges aligning with U.S. policy. This could slow investment in renewable energy domestically, although traditional energy sectors like coal and gas could see short-term benefits.
Financial Markets and Investor Sentiment
Australian financial markets could initially see gains if U.S. stock markets respond positively to Trump’s tax and deregulation policies. However, aggressive tariffs and trade restrictions may lead to volatility.
Higher U.S. bond yields (the interest rates on U.S. government bonds) could raise borrowing costs in Australia, potentially slowing economic recovery.
In summary, we agree with Oliver that while the U.S. presidential election matters, many other factors influence investment markets. Investors should stay focused on their financial goals, maintain well-diversified portfolios across asset classes and regions, and keep a long-term perspective. Currently, we expect central banks to continue lowering interest rates as inflation declines, which should support share markets.
View the full report here: Trump presidency and implications – AMP
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