After securing 312 electoral college votes at the 2024 presidential election, former President Donald Trump has successfully paved his return to the White House, with his second term set to commence in 2025 (See Figure 1 below). His victory ignited swift yet polarised reactions across the US, ranging from jubilant rallies celebrating conservative strongholds and economic priorities to protests raising concerns over civil rights and climate issues. Leaders across the world, including Prime Minister Anthony Albanese have expressed their salutations and diplomatic yearnings to work cooperatively with the new administration. While it is indisputable that Trump’s victory imposes significant implications for the Australian economy, some leading analysts have already predicted the worst by signalling increasing trade disruptions fuelling inflationary pressures and rising interest rates. Hence, the following article aims to synthesise these expert opinions regarding the implications of Trump’s victory on the Australian economy and how Australia may counter any economic ramifications.
Figure 1: Electoral Map of the 2024 US Presidential Election (Source: NBC News)
A broad consensus amongst experts suggests that much of Australia’s economic anxiety hinges on how Trump’s protectionist policies may recalibrate the nation’s three-way trade dynamics between both Beijing and Washington. China remains Australia’s largest trading partner with two-way trade totalling $327.2 billion in 2023. Meanwhile, USA comes in 5th place whose two-way trade totalled $77 billion in 2023 and is underpinned by the 2005 AUSFTA Free Trade Agreement (See Figure 2 below). Earlier this year, there was a bipartisan consensus amongst US major parties favouring protectionism against Chinese imports. However, Trump’s policies took a more aggressive stance, advocating for a tariff increase from 19% to 60% with an implied expectation for its allies to reciprocate these trade policies. As a relatively open economy, Australia’s future is now contingent upon its ability to balance its geopolitical alliances with both China and Australia in a manner that does not intensify a trade war under Trump’s Administration. According to a May 2024 OECD report, Australia’s GDP could suffer a 1.2% contraction following faltering diplomatic efforts that would ensnare the nation into the US-China trade war under Trump’s protectionist policies.
Figure 2: Australia’s Key Export Markets, China remains an important Trading Partner (Source: The Strategist)
Historically, Australia has adeptly navigated its diplomatic ties with both the US and China and preserved its autonomy within trade policy. This was notable in 2015 when the Obama administration’s request for Canberra to cease its iron ore exports with China was firmly declined by the Tony Abbott Coalition government on the grounds that they were “hypocritical”, leading few experts to believe that a similar position would be adopted in the future if such friend-shoring requests ought to come from Washington. However, Australia’s current capability to decline protectionist measures against China like these is being challenged by evidence presented by academics. Their evidence was qualitatively framed by the argument that Australia’s increasing military alliance with the USA and trade dependence with China places the nation into a dilemmic predicament in which it would have to succumb to some protectionist policies against China. According to a comprehensive 51-page paper by ANU academics, econometric modelling aligns with the doctrine that succumbing to these polices during the Trump Era could create a declining trend in Australia’s GDP by around 0.2% on average till 2034. Amidst these economic uncertainties, Australia’s Treasurer, Jim Chalmers, visited China for the first time in seven years, aiming to stabilise the economic relationship between the two nations. Chalmers meetings with top Chinese officials and Australian business leaders, reinforces the solemnity of Trump’s policies and Australia’s commitment to maintain stable geopolitical relationships ensuring that the activities of Australian workers, businesses, and investors remain undisrupted.
Another pathway through which Australia’s economy may be affected by Trump’s policies has been extrapolated through estimates by the Committee for Responsible Federal Budgets which suggest that US debt could soar by $7.8 trillion, reaching an unprecedented 143% of GDP by 2035. This escalating debt could weaken the US dollar, as sustained deficit spending without fiscal restraint raises concerns about the stability of the currency. Former Australian Treasurer Joe Hockey has criticised these economic plans, warning that a weaker US dollar induced by federal debt could weaken the Australian Dollar, making imports more expensive for Australian consumers and businesses (See Figure 3). Furthermore, the declining Australian dollar, combined with inflationary pressures caused by tariffs would interfere with the RBA’s interest rate target. The logic follows that as inflation will not return sustainably to its target midpoint until 2026, interest rates would have to remain elevated for a period of time. This prolonged period of higher interest rates could dampen economic growth in Australia, adding further complexity to an already uncertain global economic environment shaped by US fiscal policies.
Figure 3: Australian Semi-Annual Exchange Rate fluctuations in terms of the USD and TWI between 2024 and 2024 (Source: The Guardian)
While much of the available evidence acknowledges the economic ramifications of Trump’s victory on Australia, a few perspectives have emerged that highlight economic opportunities and methods to mitigate any ramifications. For instance, GSFM market strategist Stephen Miller argues that tariffs on Chinese imports combined with a declining dollar would cumulatively lead to a disinflationary spiral that would allow a much-anticipated RBA rate cut sooner rather than later. Some analysts have also perceived Trump’s Victory as a cautionary signal for Australia to reevaluate its reliance on key trading partners and focus on initiatives that increase trade diversification and enhance resource independence. Moreover, these initiatives are not uncommon as during the Trump’s first term, Australia launched the Future Made in Australia plan to boost the renewable energy sector and support local businesses, while strengthening its ties with Indo-Pacific nations, exemplified by the $2 billion Southeast Asia Investment Financing Facility. Therefore, if capital flows are directed to similar initiatives during the upcoming years, it would support Australia in creating a more resilient and independent economy that can withstand the geopolitical anxiety induced through protectionist policies.
Finally, an interesting perspective by Australia Energy Producers CEO Samantha McCulloch suggests that Trump’s plans to ramp up oil and gas production present Australia with a strategic opportunity to eradicate any barriers and encourage foreign investment in its abundant natural gas reserves (See Figure 4) . The argument logically follows that by removing such barriers, Australia could capture the interests of US FDI investors and remarket its suitability for gas supply production creating a chain of economic benefits in the form of strengthened exports, employment and more reliable energy across the nation. While the economic effects are desirable, it also raises questions regarding how foreign investments in gas supply may negatively impact Australia’s net-zero goals as implied by the Paris Agreement. Nevertheless, it is an economic opportunity and warrants careful consideration by the nation’s policy makers and key figures within the oil and natural gas industry.
Figure 4: Australia’s key Natural Gas reserves and their volumes measures in trillion cubic feet (Source: ResearchGate)
Donald Trump’s 2024 election victory presents a mix of challenges and opportunities for Australia’s economy, as outlined by experts in the field. While protectionist US policies could strain trade relations, especially amid rising tariffs and potential US-China tensions, Australia may navigate these complexities by leveraging its strong diplomatic ties and nd exploring diversification efforts to build a more resilient, open economy. One of the major industrial opportunities of this electoral result lies in the ability of Australia’s mining sector to attract inward US FDI through natural gas reserves under Trump’s energy policy. However, capturing this opportunity implies compromising between environmental sustainability or economic growth and is highlight contingent on the domestic political landscape. Ultimately, Australia’s adaptability and proactive policy decisions will be crucial in mitigating risks and capitalising on economic shifts in the evolving global landscape.
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The CAINZ Digest is published by CAINZ, a student society affiliated with the Faculty of Business at the University of Melbourne. Opinions published are not necessarily those of the publishers, printers or editors. CAINZ and the University of Melbourne do not accept any responsibility for the accuracy of information contained in the publication.
