The pandemic ushered in a period of unprecedented uncertainty.
We all tuned into the TV and our smart devices daily to find out what was happening in the world around us.
Well, uncertainty has returned with the second Trump administration.
And it’s overnight, Australian time, and often in the early hours of the morning, that news from the United States splashes across mastheads.
Today it was a one-two punch… or perhaps one-two-three punch.
The Prime Minister Anthony Albanese engaged with President Trump, requesting an exemption from a 25 per cent tariff on steel and aluminium exports.
There’s a precedent for this.
Former prime minister Malcom Turnbull was able to twist the president’s arm in 2018, avoiding US-imposed tariff hikes on steel and aluminium.
Sure enough, we were told an exemption was “under consideration” for this latest round of steel and aluminium tariffs.
Then, confirmation of this.
It came following a question from a British reporter to Trump inside the Oval Office asking the president if there were any exceptions to his “without exceptions or exemptions” tariff hike.
“They buy a lot of airplanes,” Trump remarked.
“They are rather far away and they need lots of airplanes.“
Trump said he told the Australian prime minister that he’d give “great consideration” to an exemption on steel and aluminium tariffs.
So, now, what?
This new whiplash, economists say, could be with us for a while.
“Trump’s tariff war has potentially another six to nine months to go at least,” AMP’s head of investment strategy Shane Oliver says.
So, what does this all mean for Australia and Australians?
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World Trade War II
First, let’s take stock of Trump’s tariff war so far.
Trump has announced 25 per cent tariffs on Canada and Mexico (then delayed them a month), and a 10 per cent tariff on China (which has commenced but may still be changed).
He’s also now applied a 25 per cent tariff on steel and aluminium applying to “everybody” which “may go higher”.
And the US president is still vowing “reciprocal tariffs” (or financial blowback for existing fees and charges from other countries), tariffs on the EU and tariffs on other industries like cars, pharmaceuticals and semi-conductors.
And AMP’s Shane Oliver says Trump’s only getting started.
“He is likely to do more after April 1, once his trade reviews are complete.”
“All of these could have various twists and turns subject to deals and Trump’s whims.
“It feels very much like 2018 only this time Trump is moving faster, presumably because the US economy is now stronger, his administration is better organised, he wants revenue to pay for income tax cuts and he wants any pain over by next year’s mid-term elections,” Dr Oliver says.
Will these tariffs hurt Australia?
While the news on tariffs may be alarming, given the nature of Australia’s open economy and how much the nation’s growth, or GDP, relies on export, the US is a relatively small buyer of Australia’s steel and aluminium.
“Look, thankfully, steel and aluminium isn’t a big part of our export store,” Betahshares chief economist David Bassanese says.
Last year, Australia exported 223,000 tonnes of steel to the US, and 83,000 tonnes of aluminium.
“It’s less than 1 per cent of our exports.”
“Maybe it will have some effect locally on the domestic sector, but most of the steel production here is domestically consumed.
“We export relatively little of it.
“So it’s a sector that you know shouldn’t have a big impact on the economy,” David Bassanese says.
The bigger issue is how Trump’s on-going war hurts both the global economy and, more importantly, Australia’s major trading partners.
The tariffs are expected to affect some of America’s closest allies, including Canada, Mexico and Australia, for whom the US remains a key export market for the metals.
But it’s the economic damage the tariff war may do to China that has economists concerned.
Indeed China hit back with tariffs of up to 15 per cent on US imports including liquefied natural gas, coal, agricultural machinery and large-displacement automobiles following the implementation of US tariffs on China’s goods into the US.
So, what’s next on the tariff war between the world’s two biggest economies?
“China continues to face big challenges: a falling population; trying to get consumer spending to take over as a key growth driver; and political tensions with the West which have escalated again with the return of Trump,” AMP’s Dr Oliver says.
“Taken together they imply a slowdown in China’s long term growth rate.
“Trump 2.0 tariffs could further depress Chinese growth this year but if they are limited to say 20 per cent as opposed to the 50-60 per cent Trump was proposing in the election China should be able to offset their negative impact (about 0.9 per cent of GDP) with policy stimulus.
“All up we see China muddling along again with growth just below 5 per cent this year… but geopolitical and economic risk remains high,” Dr Oliver says.
Could Trump’s trade war ultimately lead to an Australian recession?
Economists are hopeful it won’t.
“Trump’s trade war has arguably added to the risk of recession,” Dr Oliver warned.
“But if we are right and the average US tariff rate is capped below 10 per cent of US imports, then the hit to global and Australian economic growth should be contained to around 0.5 per cent, which is not enough to drive a recession,” he says.
Indeed Australia mostly exports raw commodities, and policy makers have a track record, including with recent Chinese tariffs, of pivoting to international markets where tariffs are not imposed.
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It’s left Australia a little white-knuckled
Whether or not a “recession” arrives in Australia or not, Donald Trump’s paved the way for indefinite economic uncertainty, and it’s making economists uncomfortable.
“It doesn’t portend well for what Donald Trump may do in other areas,” Betashares’ David Bassanese says.
“So far, at least, so far so good.
“I just worry about what he might be planning in other areas as we go forward.
“Agriculture is one the, you know, the potentially in areas like services, intellectual property.
“You know, our ability to tax some of the big technology companies in Australia may face some scrutiny by Donald Trump.
“So, at the moment, we have a free trade agreement with the US.
“We run a trade surplus,” he said.
The US runs a trade surplus with Australia, one of the few countries it isn’t in deficit with, as Donald Trump pointed out at his Oval Office press conference today.
David Bassanese sees these elements of Australia’s trade relationship with the US as “positives”.
“Again [though] the worry is going forward, you know, what he plans in other sectors and potentially more significant to the to the economy.”
Similarly, Westpac’s chief economist, Luci Ellis, says it’s time for government, policy makers and financial markets to stay on their toes.
“The Trump administration is flooding the market with announcements but not all of it will stick.
“Market reaction to US tariff news has been intense, and volatile.
“It pays to keep your head in the face of this degree of uncertainty,” Luci Ellis says.
