Donald Trump by Gage Skidmore is licensed under cc-by-sa-2.0.
At a glance
- The US is set to ramp up its protectionist stance, weakening China’s economy and demand for many Australian resources.
- The winding back of investment in renewables will slow efforts to mitigate climate change, but could open up opportunities for Australian firms.
One outcome is clear. The US looks set to continue its trend of inward-looking global trade policy. This will have flow-on effects for Australian exporters, specifically Australian mining companies and those in the green energy sector.
Tariffs harm global trade
President Biden kept the tariffs Trump imposed during his presidency and even increased them for Chinese imports of solar cells, EV batteries and minerals.
Trump has promised to raise the bar much higher, with tariffs of up to 60% on Chinese goods and up to 20% on imports from the rest of the world, says Hayley Channer, Director of Economic Security at the United States Studies Centre.
“If he follows through with this threat, this would almost certainly drive up prices for Americans and lead to tit-for-tat tariffs, with the likely impact being slower and more expensive trade globally,” she says.
Under the free trade agreement between Australia and the US, 96% of Australia’s exports to the US are tariff-free. For Australia to be exempt from any new tariffs, it will have to leverage its close ties with the US, as Malcolm Turnbull did with Trump on steel exports in 2017.
Trump also wants to remove the Indo-Pacific Economic Framework (IPEF) launched by Biden. Channer says this would not be ideal for Australia, as it is looking to the US to be more active in trade agreements in the region in order to ameliorate China’s trading dominance.
“If Trump dumped IPEF, this would leave a complete US vacuum on economic issues in the region – meaning the trade standards and practices of China could become the norm,” she says.
Commodities: a mixed picture
China’s slowing economy has already put the brakes on demand for Australian resources after a golden two decades of trade.
Higher US tariffs are expected to further weaken China’s economy and demand for Australian minerals and other items, says Arnold Jorge, CEO of the Export Council of Australia.
“We expect to see a reduction of Australian exports to China, including for commodities, because of a slowdown in Chinese manufacturing. A further softening in China will also impact consumer spending on items like food,” he says.
The potential upside for Australian miners is that Trump plans to spend more and raise the country’s debt ceiling by US$7.5 trillion. One spending area where Australian companies could benefit is defence.
“Defence is a bipartisan issue in the United States, so Trump is likely to support investments in Australian mining companies,” Channer says.
“One Australian rare earths developer has already received a pledge from the US for a $600 million investment.”
Green sector to face more hurdles
A climate-change denier, Trump is not a fan of renewables. He has pledged to repeal Biden’s 2022 Inflation Reduction Act (IRA), which has allocated over US$370 billion to reduce carbon emissions by 40% by 2030. Many expect Trump to also withdraw the US from the Paris climate agreement for a second time.
“Under Trump, the clean energy transition underway under the IRA is likely to slow,” says Channer.
“Trump is famously anti-renewables and could rescind unspent IRA funds, which could impact electric vehicle production.”
Smart Energy Council CEO John Grimes says the IRA has had an undeniable impact on renewables ambition worldwide, and that repealing it would be a step in the wrong direction, but that its absence could create opportunities for Australian businesses operating in the US.
“If the US goes down that path there will undoubtedly be real impacts on Australian businesses, particularly where there is direct investment that has been taken up and where there are strong supply chain linkages,” Grimes says.
“There will likely be some impact and opportunity for the Australian renewables energy sector.”
Another potential benefit for Australian subsidiaries in the US could be the introduction of domestic trade subsidies and tax incentives. Jorge says they could motivate Australian companies to set up shop in the US, but that higher production costs resulting from global trade tariffs will provide headwinds.
“Protectionist measures create inefficiencies that can hamper attempts to address climate change, because they may curtail innovation,” he says.
In Channer’s opinion, the best outcome for Australia is if Trump sees the value in keeping Australia a close ally.
“Predictability and stability, coupled with an appreciation for the value of US allies and emphasis on win-win – over win-lose – outcomes would be the best situation for Australia,” she says.
