A senior economist has noted the indirect effect of the United States tariffs introduced on 2 April will have a significant impact on Australia, but may have a positive influence on domestic interest rates.
AMP chief economist and head of investment strategy Shane Oliver predicted Australian exports to the US will be more expensive, but in the main will continue on unaffected as only 5 per cent of local exports head to America, worth about 0.9 per cent of Australia’s gross domestic product.
“However, the bigger threat comes from the hit to global growth from Trump’s trade war, particularly in China and Asia, which will likely result in less demand for our exports, posing a threat to the expected pick-up in Australian economic growth,” Oliver noted.
“If we avoid retaliatory tariffs on US imports (as appears likely) and the Australian dollar remains stable, Trump’s tariffs are more likely to hinder growth than boost inflation, supporting further Reserve Bank of Australia rate cuts.”
He also forecast a further fall in share prices both here and in the US.
“Our assessment remains that global and Australian shares will have a 15 per cent-plus correction measured from this year’s high,” he said.
“A 10 per cent fall in US shares was not enough to put pressure on Trump, but a 15 per cent-plus fall likely will at some point, resulting in some moderation in the tariffs and refocus on the market-positive aspects of his agenda, like tax cuts and deregulation.”
According to Oliver, if the Trump administration is forced to amend its fiscal direction due to market movements, investors may have some reason to be slightly optimistic in their outlook.
“Lower share prices and a US pivot away from tariffs to more positive supply-side policies will eventually create buying opportunities for investors, but there may be a way to go yet,” he said.
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