On Thursday, Australian time, the Trump Administration announced its “Liberation Day” retaliatory tariffs, which impose tariffs of between 10% and 48% on trading partners.
This will see the US’ effective tariff rate rise to its highest level in more than a century.
The announcement of the tariffs led to heavy falls on global stock markets. In Australia, the ASX 200 fell 0.9% on Thursday and more than 1% on Friday.
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The direct impacts of the US tariffs in Australia will likely be small. Solely round 4% of Australia’s exports are to the US, so a ten% tariff gained’t harm an excessive amount of.
The oblique impacts are the larger concern, with the probabilities of a worldwide recession growing.
Australia exports almost six occasions as a lot to China because it does to the US.
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Australia’s prime three export markets – China, Japan, and Korea – are dealing with new tariffs starting from 24% to 34%.
Supply: DFAT
If the US tariffs gradual progress in these nations, they’ll probably purchase fewer items from Australia—e.g., iron ore, coal, and power.
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AMP chief economist Shane Oliver raised the likelihood of the US experiencing a recession to 40%. Oliver additionally believes that world progress could possibly be pushed in direction of 2% from round 3% at present.
Nonetheless, the last word influence on progress will rely on how different international locations retaliate.
One factor is for sure: uncertainty has elevated, confidence has been hit, and world exercise will likely be softer than in any other case.
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One of many unintended effects of the Trump Administration’s tariffs is that they’ve elevated the probability of deeper rate of interest cuts from the Reserve Financial institution of Australia (RBA), by way of two channels:
- Slower world progress and the dangers of a worldwide recession.
- Australia is extra more likely to be dumped with cheaper Chinese language items, which ought to decrease imported inflation.
As illustrated under by Justin Fabo from Antipodean Macro, market pricing has moved swiftly to anticipate at the least 100bps of RBA money price cuts by December.
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Fabo additionally exhibits how “because the early Nineteen Nineties, housing value progress in Australia has quickened, or the speed of decline slowed, each time the RBA has launched into coverage easing”.
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The upshot is that the Trump Administration’s tariffs might set off an Australian home value increase.
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