While Donald Trump’s recent social media announcement is not expected to have an immediate impact on Australia, Stephen Miller, market strategist at GSFM, warned that in the long run, this decision could escalate global trade tensions, potentially weakening global economic activity.
Last week, Trump outlined plans to sign an executive order in January imposing a 25 per cent tariff on goods from Mexico and Canada, along with an additional 10 per cent tariff on imports from China.
Miller told InvestorDaily that this move could be detrimental to the US economy, leading to persistently high inflation, which would complicate the Federal Reserve’s ability to reduce interest rates.
However, Miller noted that the immediate impact on Australia is expected to be “relatively small”.
“[The announcement] is bad for US inflation and if China, Mexico and Canada retaliate, it is bad for Chinese, Mexican and Canadian inflation, but there is no reason why it should have an impact on Australian inflation directly,” he told InvestorDaily.
“As long as we don’t retaliate, these actions by themselves should have no impact on the prices of goods that we import from anywhere else.”
But he emphasised that any negative impact on China’s economy, which is the receiver of Australia’s large proportion of exports, would not be “helpful”.
Jun Bei Liu, portfolio manager at Tribeca Investment Partners, believes that Trump’s recent announcement signals his broader intentions for the markets. She explained that while higher tariffs on Chinese goods were anticipated, the inclusion of Canada and Mexico was unexpected and has added uncertainty to global trade.
Liu highlighted that many Australian companies rely on Chinese manufacturing, and while Australia may not face direct impacts from the tariffs themselves, the consequences for Australian firms exporting to the US could be significant. This could raise costs for Australian firms that rely on Chinese manufacturing.
She also pointed out a growing trend of companies diversifying their operations to other countries, such as Indonesia and Mexico, as a strategy to mitigate the risks associated with global trade uncertainties.
“And now Mexico gets impacted and it just creates more disruption for these businesses,” she told InvestorDaily.
She highlighted existing uncertainty in the market regarding whether this extra 10 per cent tariff on Chinese imports would be the final outcome.
“His casual comments in the media often cast a bit of doubt and fear. And I certainly feel there could be more [tariffs] across Europe, so there is absolutely more to come,” she said.
Long-term implications
While the short-term implications of these tariffs may be relatively neutral for Australia, Miller warned that the long-term effects could be far more severe, given the elevated risk of global trade wars.
As a small, open economy, Australia would be particularly vulnerable to broader trade wars, with potential disruptions to exports and supply chains.
“It will cause weaker economic activity in Australia, weaker employment growth, and probably in the longer-term lower inflation, and it will mean that the interest rates are lower than they otherwise would be,” he said.
“There is a temptation perhaps to see that as good news, it is not good news [and] the only reason that interest rates will be lower is because the global trade war will crimp Australia’s economic growth.”
