Return To White House: What Trump's Presidency Holds For Australian?Economy

Donald Trump has devoted supporters and equally passionate critics, but one thing is certain: his policies have the potential to shake up global markets on any given day.

While I'm not a big fan of his abrupt style, one cannot ignore the fact that some of his pro-business policies make economic sense, though others spell trouble.

Trump’s proposed 60% tariff on Chinese imports and a 10% tariff on Australian exports are reasons enough for Australian property investors to watch closely how things play out.

Australia’s direct trade with the US is limited, but our deep trade ties with China mean that economic turbulence between these two could expose our economy.

This is likely to be a rude-awakening for property investors in Australia, particularly those in resource-reliant areas as they should consider the potential impacts if these global tensions escalate. These are the possible fallouts on the Australian economy as President elect Trump is all set to take the helm in the Oval Office.

US Equities Surge with Business-Friendly Policies

The business-friendly policies that Trump offers are likely to create a significant jump in the equities market, leading to an influx of money moving from real estate to stocks. This shift could cause the US property market to slow down in the short term as investors pivot toward the booming stock market.

Short-Term Shift from Real Estate to Equities

As equities attract increased investment, the property market in the US may experience a temporary halt. With lucrative tax cuts and policies driving excitement in the stock market, real estate may see a short-lived slowdown as capital flows into shares.

Lower Taxes, Higher Demand

While these policies seem likely to lower taxes, putting more money in people’s pockets, they also suggest an eventual increase in housing demand. Lower taxes mean more disposable income, potentially boosting the property market once the equities surge stabilizes.

The Threat of US-China Trade War Tariffs

Despite these positives, a significant issue remains: the proposed 30-40% tariffs on Chinese imports. With China already experiencing slower growth, such tariffs could provoke a trade war, impacting multiple economies, including Australia’s.

Impact of Trade Tensions on Australian Economy

Australia may feel the ripple effects of US-China trade tensions, as any sanctions affecting Chinese production could reduce China’s demand for Australian raw materials. This interdependence creates economic vulnerabilities for Australia as trade barriers rise.

Reduced Demand for Australian Raw Materials in China

A decline in China’s demand for raw materials, such as iron ore and coal, would have a direct impact on Australia’s economy. With fewer exports to China, sectors linked to mining may face new challenges.

Iron Ore and Coal at Historic Lows

Iron ore and coal are already at historic lows, and the Australian mining boom is tapering off. This situation could result in significant economic setbacks for cities like Perth, which rely heavily on mining and FIFO work.

Regional Economic Impact of Mining Decline

In addition to Perth, other regions dependent on iron ore and steel production may experience a slowdown. A downturn in mining-related employment and income could affect local economies across Australia.

US Dollar Weakens; Australian Dollar Could Drop

If the US dollar weakens due to trade tensions, the Australian dollar could also see a drop. This potential currency fluctuation gives further reason to consider an interest rate cut in Australia early next year.

Interest Rate Cuts Possible by Early Next Year

With economic uncertainty mounting, the Reserve Bank of Australia (RBA) may need to lower interest rates as soon as March or April. This timing could help offset the effects of a weakening dollar and trade disruptions.

Upcoming Federal Elections and RBA Rate Constraints

However, with federal elections on the horizon, political parties are likely to announce policies favourable to the public, making it challenging for the RBA to enact significant rate changes before the elections. Major interest rate decisions may thus be postponed until the post-election period.