How A Trump Presidency Will Impact Australia’s Economy

Nothing triggers the financial markets quite like uncertainty, and stocks and crypto assets soared in the wake of a definitive election result.

While renewable energy stocks fell—a reflection of Trump’s disdain for environmental regulations—banking and tech stocks rose at the prospect of looser government oversight.

As Moomoo Australia’s market strategist, Jessica Amir, noted “investors appeared to be buying every and any risk-asset that could benefit from Trump’s pro-business, low-regulation, low-tax stance”.

Bitcoin hit a new high of $US75,000 in the days after the election, while the Dow Jones 30 gained 3.6%—its best day in more than two years. The tech-heavy Nasdaq also rose by more than 3%, with shares in Elon Musk’s Tesla rising 15% alone. By late November BTC had surged past $US98,000 and appeared to be inching towards the six-figure milestone.

“Traders also bought into the US dollar, which made its biggest one-day gain day since 2020, as traders bet Trump’s tariffs will benefit corporate America,” Amir says.

Amir notes that for the most part, stocks and risk assets should perform strongly over the coming months.

“Institutions are expected to put capital back into markets, as markets have the certainty they’ve been awaiting and we’re entering the strong weeks of the year for stocks,” she added.

The Aussie Dollar

The election of Trump has also resulted in an early setback for the Australian dollar, which fell by 1.5 cents against the Greenback in the hours after Trump’s win.

On November 7, the day after Trump’s victory, the Aussie dollar fell to US66 cents—the lowest level since August.

It came after a fall in the price of gold, which was driven by a stronger US dollar, and expectations inflation and interest rates may remain high, or not fall as fast, under a Trump presidency.

RBA financial markets assistant governor Christopher Kent told a budget estimates hearing that Trump’s tariffs would potentially push the US dollar higher (and other currencies lower).

“We just don’t know how big and who they’ll be applied to, but it should push up the US dollar, because US customers will be buying less goods from the rest of the world, and they’ll need less foreign exchange, but it means less demand by the US for global goods,” he said.

Trade Tariffs

Which brings us to tariffs. Australia forged a free trade deal with the US some two decades ago, in which almost 97% of our imports are currently tariff-free.

Trump has long pledged a radical protectionist stance that would impose trade tariffs of between 10% and 20% on global imports, with a 60% tariff on China’s incoming goods. It’s worth noting that Australia narrowly avoided new tariffs on locally made steel under the first Trump administration.

Now experts warn that direct tariffs on imports into the US not only hurt Australia’s exports, but they may also spark a trade war between the US and China. China is Australia’s biggest trading partner—accounting for almost one-third of our two-way trade— which, as former US ambassador Arthur Sinodinos notes, puts Australia “in the crossfire”.

“If we have international trade wars, that will have an impact on global trade and investment,” he told the ABC.

“It will flow on to Australia because of the impact on the Chinese economy, if (Trump) is able to enact the full program.”

Economist Steven Hamilton from George Washington University said the economy is likely to be worse off under Trump.

“You can’t expect to put 10% to 20% tax on everything and expect inflation to go down,” Hamilton told the ABC.

“The tariffs are going to harm US consumers, they’re going to raise prices. They’re going to have flow-on effects for other countries.

“It’s also going to have flow-on effects to Australia through China: if you put a 60% tariff on Chinese goods, they are going to produce a lot fewer goods, and they’re going to want a lot less of (Australia’s) iron-ore.”

Will AUKUS Be Scrapped?

One of the big signature defence deals in recent times has been the AUKUS pact, a tripartite agreement between Australia, the US and the UK. Central to the pact is the provision of sovereign nuclear-powered submarines, including the transfer of Virginia class subs from the US to Australia.

Trump has a history of pulling out of multilateral agreements he deems damaging to the US—the Paris climate agreement being the most notable in recent times.

Now some pundits are wondering whether the AUKUS deal will end up on the cutting-room floor, which wouldn’t be a problem for lobby group, Labor Against War, which has called on the government to dump the deal.

“It is completely untenable for Australia to continue in lock-step with a militarised US government led by an unstable president,” spokesperson Marcus Strom said.

However, Hockey believes not much will change in relation to Australia’s defence ties.

“Donald Trump sees Australia very favourably when it comes to issues like national security. I think that will flow through to AUKUS, that he won’t want to change the relationship with AUKUS,” he said.

One of the chief concerns regarding a Donald Trump 2.0 presidency is the lingering effect of inflation—just as advanced economies are beginning to gain a foothold in the battle against high prices. Most economists agree that higher tariffs, if enacted, will have an inflationary effect.

CEO of National Australia Bank, Andrew Irvine, added that Trump’s plan to cut regulation may make inflation harder to tame.

“The thing we’re going to have to watch for is what does that mean for inflation and what does that mean for interest rates,” he said.

“If the US economy is stronger, the rates won’t come down as hard there as maybe markets were expecting, and that could have implications to the rest of the global economy.”

Meanwhile, the RBA’s Christopher Kent says the Trump presidency’s tax cuts will likely fuel demand in the economy and may lead to higher interest rates across the board.

“Because the US is such an important source of funding, and the demand by the government for borrowing is substantial, that’ll have upward effects on global interest rates,” he said.

When Hamilton was asked by ABC journalist David Speers if there was anything fiscally positive to emerge from Trump’s re-election, Hamilton quipped: “Well, If you’re really rich, he’s going to cut your taxes.”

Furthermore, Trump’s promise to cut US taxes, including lowering the federal corporate tax rate to just 15%, will be expensive not just domestically but for Australia as well.

Such tax cuts – alongside a range of new spending proposals – don’t come cheap. It has recently been estimated that Trump’s tax and spending plan could increase total US debt by US$7.75 trillion (A$11.8 trillion).

While that number might be hard to wrap your head around, it basically means the US government will be borrowing a lot more money in the future. That will drive up borrowing costs for other borrowers, such as the Australian government, according to Susan Stone, the credit union SA chair of economics at the University of South Australia.

“It has recently been estimated that Trump’s tax and spending plan could increase total US debt by $US7.75 trillion,” Stone notes on The Conversation.

“While that number might be hard to wrap your head around, it basically means the US government will be borrowing a lot more money in the future. That will drive up borrowing costs for other borrowers, such as the Australian government.”

In recent comments, Hockey said a second Trump presidency would not be too different to that of his first term.

“Donald Trump 2.0 won’t be a hell of a lot different to Donald Trump 1.0 and that’s good for us (in Australia),” Hockey said.

AMP chief economist, Shane Oliver, noted in his weekly blog that Trump faces a much tougher financial environment today than when he first took office in 2017: higher bond yields and inflation, with more expensive shares and a worse budget deficit.

“Taken together these constraints may ultimately serve to nudge Trump more towards Reagan-like supply-side reforms and less towards populism with a focus on tariffs,” Oliver said.

For now, the RBA governor, Michele Bullock, is taking a wait-and-see approach—and is in no hurry to revise the bank’s inflation forecasts.

“At this stage we would be sticking to our inflation outlook,” said Bullock, before adding that she “doesn’t have a view” on whether Trump’s win will translate into higher interest rates in Australia for longer.