How might Australia’s economy be affected by Donald Trump’s election?

Initial Market Reaction

• Australian markets initially responded positively, with shares up 0.8%, though the Australian dollar fell by about 1.5% against the US dollar.

• Mixed reactions followed: European markets dropped amid concerns about potential tariffs, while Wall Street saw record gains, fueled by investor optimism about corporate profits under Trump’s business-friendly policies.

Potential Economic Impacts for Australia

• Export Concerns: Australia’s reliance on exports to China could make it vulnerable if the U.S. imposes heavy tariffs on Chinese imports. This would likely reduce Chinese demand for Australian exports, especially raw materials, affecting the Australian economy.

• Higher Borrowing Costs: With expectations of increased U.S. government debt (from policies like tax cuts), global interest rates could rise, impacting Australian borrowing costs and potentially leading to higher local interest rates.

• Australian Dollar and Inflation: The AUD has been pressured against the USD but has generally gained on other global currencies. Should Trump’s tariffs disrupt trade, demand for the AUD could decline, pushing its value down. This would make imports more expensive, potentially leading to inflationary pressures in Australia.

Uncertainties and Speculative Impacts

• China’s Potential Responses: If tariffs are imposed, China may enact retaliatory measures or introduce fiscal stimulus to stabilize its economy. Australia’s economic impact could then vary depending on China’s specific response strategies.

• Policy Impacts: Trump’s promises, such as reducing regulation and pulling out of climate agreements, could influence Australia indirectly. For instance, the potential collapse of the Paris Climate Accord might force Australia to reconsider its emissions strategies.

• Labor and Supply Chains: Policies on immigration and trade may disrupt global supply chains, affecting inflation and labor availability in the U.S., with potential trickle-down effects globally, including in Australia.

Australian Stock Market

• Although U.S. equities surged, Australian stocks showed mixed results. The strong USD could dampen commodity prices, which are vital for Australia’s resource-based market.

• Some stocks, like Australian steelmaker BlueScope, may benefit if tariffs support domestic U.S. industries. However, the fortunes of Australia’s iron ore miners are more closely linked to China’s economic moves than U.S. election outcomes.

Overall Outlook

The potential for heightened uncertainty, especially regarding trade and fiscal policy, suggests Australian markets may experience volatility. Key sectors such as resources and export-oriented industries could face both risks and opportunities, largely contingent on U.S.-China trade dynamics and domestic responses from Chinese authorities.

Rick Maggi CFP, Financial Advisor Perth, Westmount Financial

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Disclaimer
This document has been carefully prepared by Westmount Securities Pty Ltd (ABN 42 090 595 289, AFSL 225715) for general information purposes only. However, neither Westmount Securities Pty Ltd nor any of its affiliates guarantee the accuracy or completeness of any statements contained herein, including any forecasts. It is important to note that past performance is not a reliable indicator of future outcomes. This material does not consider the specific objectives, financial circumstances, or needs of any particular investor. Therefore, before making any investment decisions, investors should assess the relevance of this information to their individual situation and consult professional advice, taking into account their unique objectives, financial position, and needs.