Trump's potentially harsh implications for Australian economy, property markets

The re-election of Donald Trump to the US presidency could have economic ramifications in Australia as compelling and unpredictable as the margin of his victory.

At a time when the global geopolitical scene presents a seemingly endless array of fault lines, flashpoints and humanitarian disasters, a Trump promise to launch a trade war against China and other exporters to the US will have Australian governments, economists and borrowers looking on nervously.

The Russian invasion of Ukraine played a significant role in disrupting supply chains and adding to the cost of housing construction in Australia, but a suppressed Chinese economy weighed down by Trump’s threat to impose 60 per cent tariffs could far exceed those impacts.

Sean Langcake, Head of Macroeconomic Forecasting, Oxford Economics Australia, said the Australian economy is facing strong cross currents that are making for a challenging outlook and environment for policy makers.

“The Australian economy is set to be buffeted by a diverse set of global, market shifting forces,” Mr Langcake said.

“(There are) new policy directions in major trading partner economies, headlined by the US election and further afield, policymakers are grappling with finding optimal policy responses in economies facing larger and more frequent supply shocks.”

“Trade disputes that push production away from lowest cost economies are likely to increase inflation volatility and potentially interest rates in the medium term.”

A second Trump presidency could spell trouble for Australia on several fronts, including interest rates and economic factors that affect homeowners and the wider property market.

The imposition of trade restrictions, such as tariffs, typically lead to lower growth and higher inflation.

- Steven Kennedy, Treasury Secretary

Nerida Conisbee, Chief Economist, Ray White Group, said Trump’s win could have significant trade and currency market implications and strain overall economic relations between the two nations.

“Trump’s policies generally pose more significant risks to Australia due to their potentially disruptive nature, while Kamala Harris (would likely have) provided more stability and predictability in economic relations.”

“Trump’s tendency towards lower taxes and pressure for lower interest rates could reignite global inflation, which might force the Reserve Bank of Australia (RBA) to raise interest rates,” she said.

“An overheating US economy would impact the inflation rate in Australia.

“An escalation in US-China tensions could also put Australia in a difficult position, potentially disrupting trade with our largest partner.”

Throughout his campaigning, Trump touted the possible imposition of a levy on Chinese imports in the range of 60 cent if he won the presidency. He has also said he would look to place a blanket 10 per cent tariff on all foreign imports.

Global trade war

Dr Shane Oliver, Head of Investment Strategy and Chief Economist at AMP Capital, said a global trade war could be imminent, with huge stakes for Australian homeowners and families.

“China is our biggest export market, takes 35 per cent of our exports, so if it’s subject to tariffs then it could be a dislocation effect, where there’s a flow back to less demand for our products that feed into the Chinese industrial or production process,” Dr Oliver said.

“If Trump’s tariffs ignite a global trade war, which leads to a sharper downturn in global economic activity, that’s probably the biggest risk.”

Such an outbreak would have grave implications for Australia’s resources sector and pose particular risk to property markets supported by strong employment and mining economies in Queensland and Western Australia.

Higher inflation and subsequently interest rates, would also add further downward pressure on property prices, a point acknowledged by the Federal Government’s Treasury Secretary, Steven Kennedy.

Fronting senate estimates on Wednesday (6 November), he said officials had modelled the Republican party’s geo-economic ideas and warned that they would have “consequences” for Australia.

“Our models are general equilibrium models, so exchange rates adjust, and a variety of other things adjust, but in very in broad terms, the imposition of trade restrictions, such as tariffs, typically lead to lower growth and higher inflation.”

Dr Kennedy said Mr Trump’s tariffs would increase inflation in the US while hurting growth in both the US and Chinese economies.

Growth in Australia would also take hit due to a slowdown in China.

“Some upside for inflation in the US, downside for growth in China, downside for growth in the US,” he said.

“The implications for Australia are more about growth because of the implications for China, of course, and their demand for our goods.”

Ben Udy, Lead Economist, Macro Forecasting and Analysis, Oxford Economics Australia, said the worst impacts on inflation in Australia could be avoided but headwinds remained.

“Global trade has been shaken by several headwinds this year, including supply chain disruptions and geopolitical tensions and while some of these headwinds have peaked others are still looming large.”

While the US has reduced its direct trade reliance on China, its indirect exposure is less clear as many exporters have diverted trade through third-party countries. 

“We suspect global shipping costs have reached a peak, but even if they surprise us and rise further, we expect the impact on inflation to be small,” Mr Udy said.

Lower migration could hurt construction

On another international front, Oxford Economics Australia forecasts that a slowdown is looming for foreign migration to Australia, with recent policy tweaks focused on international student flows expected to see net overseas migration halve from the current boom level to 250,000 by FY26.

Meanwhile, announced policy shifts at both the state and federal level, combined with substantial pent-up housing demand, cement a firm platform for residential activity to ramp up in the second half of the decade.

“We expect supply to climb in the back half of the decade, reaching 220,000 total dwelling completions in FY2029,” Maree Kilroy, Senior Economist at Oxford Economics Australia, said.

“However, industry capacity represents the most significant downside risk to the outlook for new housing.

“Persistent shortages of skilled trade labour will place a speed limit on the early-to-mid stage recovery.

“Construction insolvencies are expected to continue to surge over 2024, while issues with utility connections across our major cities may also act as a drag near term.”