As he campaigned for president, Mr Trump suggested imposing tariffs as high as 45 per cent on goods imported from China and 35 per cent on goods imported from Mexico.
Such measures, according to HSBC, would be a break with current practice and would likely to lead to a sharp contraction in bilateral trade between both countries and the US.
The result would well be a slowing of US economic growth, said HSBC – but the effects of a US-instigated trade war could be even more serious for Australia.
AMP Capital chief economist Shane Oliver pointed out that Australia is more dependent on trade than the US, with exports making up 21 per cent of GDP (as against 13 per cent in the US).
Given that Australia’s economy is relatively highly exposed to global trade, a trade war would leave Australia “particularly vulnerable”, Mr Oliver said.
FIIG chief economist Craig Swanger said the renegotiation (or complete scrapping, as Donald Trump has flagged) of the Trans-Pacific Partnership (TPP) will also be a negative for Australia in terms of direct trade with the US.
Furthermore, the axing of the TPP will also affect exports from Asia to the US, some of which are manufactured with Australian commodities, Mr Swanger said.
While there are checks on presidential power (albeit via a Republican-controlled congress) withdrawal from trade deals such as the TPP does not currently require congressional approval.
Asia-Pacific political instability could also rise if Mr Trump follows through with his threat to remove the US military presence from Korea and Japan.
“Any military action amongst Australia’s key trading partners is strongly negative for Australian companies,” Mr Swanger said.
Read more:
US inflation tipped to skyrocket under Trump
Don’t touch default super: AIST
‘We’re putting things right’, says CBA
Half of Australians unprepared for retirement
ANZ announces new tech executive
