Introduction to the Trump Tariffs
The world is waiting to see what tariff Australia will face from President Donald Trump. As it’s August 1 in Australia, but the tariffs are based on US time, we have to wait until tomorrow to find out. The US President often makes big announcements on weekends, so we might have to wait a day longer. Whatever the tariff is, it will be a big news story, and important bodies like the RBA, the Albanese Government, and the stock market will have a reaction.
The Likely Tariff
The US President has been threatening tariffs on various countries, including Australia. We’re currently on the list of key trading partners who haven’t made a deal with the Trump team. India, Canada, Mexico, and Australia are seen as key trading partners without a signed agreement. On Liberation Day, Canada was threatened with a 35% tariff, Mexico 30%, and India 25% (plus other penalties). Australia was looking at a 10% tariff, but there’s speculation that this could be raised to 15% or even 20%.
What the Experts are Saying
CNBC reporters are saying that Australia will likely cop the baseline rate of 10%. However, there’s speculation that this could be raised to 15% or 20%. The reporters also noted that Canberra has not been publicly known to be in trade talks with Washington. Prime Minister Albanese maintains that our trade deficit means we should not face any tariffs. Interestingly, the US reporters pointed to Australia relaxing restrictions on US beef, a move that the office of the US trade representative credited to Trump.
Reaction to the Tariff
The reaction to the upcoming tariff revelations will be significant.
The Albanese Government
A 10% tariff would be accepted, though the PM and Trade Minister Don Farrell would stick to their argument that our trade deficit entitles us to no tariff. If the tariff is 15% or 20%, there could be a public, negative reaction. However, the outcry could be muted because specific punishments from the President, such as big tariffs on pharmaceuticals and other specific sectors, are still in the wings.
The RBA
The central bank would not be influenced by the tariff being 10% or higher in the short run. While a US tariff won’t affect our inflation rate, it could reduce the number of rate cuts if global inflation kicks up because of the knock-on effects of the Trump tariffs. The expected August rate cut wouldn’t be affected, though the tipped November one could be.
The Stock Market
Our market would slide on a bigger-than-expected tariff but not by a huge amount. Individual companies badly affected by a bigger-than-expected tariff would see a big stock price fall. However, the tariff deal that could really hit or help stocks will be the agreement with China. The market is likely to rise for the next 12 months on relief that tariffs aren’t as bad as expected, China gets an OK deal, rates are falling, and Trump will cut taxes and introduce deregulation.
Conclusion
In conclusion, the upcoming tariff revelations will have a significant impact on Australia. While the tariff itself may have a small economic impact, the reaction from the government, central bank, and stock market will be significant. The Albanese Government will likely argue that our trade deficit entitles us to no tariff, while the RBA will not be influenced by the tariff in the short run. The stock market will likely slide on a bigger-than-expected tariff, but individual companies will be affected differently. Ultimately, the outcome will depend on the specifics of the tariff and how the various parties react to it.
