Criterion: Turf the Trump tariff trash, here are seven reasons why everything will be OK
In the spirit of hopeless optimism, here are seven reasons why Australia could fare well in the redux world of tariff protectionism.
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Amid one of the stock market’s worst downturns, investors again are turning negative after Thursday's stalled comeback attempt.
However, Australia could emerge surprisingly well if Trump’s punitive tariff measures are enacted
The key wildcard is how China – our biggest trading partner – fares
After Donald Trump’s tariff backflip more impressive than Nadia Comaneci’s perfect effort on the gym mat, investors are confused.
They need to take Bing Crosby’s advice and accentuate the positive - or at least don't panic and stick with Mr In Between.
Thursday’s relief rally aside, the world still faces dire economic consequences if America retreats into an isolationist shell.
But here are seven reasons why Australia might – or should – fare OK.
Scenario one: the US avoids recession
The tariffs have been likened to a de facto sales tax, which in isolation won’t drive America into recession.
Helpfully, the oil price has tumbled – a nice anti-inflationary tailwind and in stark contrast to the sentiment when the Gaza conflict kicked off in October 2023.
Still, we wouldn’t like to be in the (imported) shoes of Federal Reserve chair Jerome Powell as he balances political pressure to cut rates with the imperative to control inflation and – possibly stagflation.
Scenario two: Australia avoids recession
Australia’s trade exposure to the US is modest and we import more of their stuff than we send to them.
China is the wildcard (see below).
Unless economists are Bullockingly wrong, the Reserve Bank will slash rates from May onwards even though the Reserve Bank guv is talking down the likely extent of cuts.
Lower rates mean happy homeowners, so stock up on those beaten down Wesfarmers (ASX:WES) (read: Bunnings) shares.
This is good for exports, especially for companies that sell US$-denominated goods and report in Pacific Pesos. Cochlear (ASX:COH) is one of them.
Scenario three: China avoids recession
If the punitive tariffs stick, China is the wildcard in terms of how Australia fares.
Fear not!
When it comes to simulating domestic demand, China has more levers – fiscal and monetary wise – than Bob the Builder’s backhoe.
Chinese demand for our minerals will remain robust and Australia will dig itself out of a hole by digging further into one.
Buy BHP (ASX:BHP) , Rio Tinto (ASX:RIO) or Fortescue (ASX:FMG) for a shock-and-ore recovery.
Scenario four: tariffs benefit Aussie companies
Several companies assess the tariff impact as positive, in that rivals could be paying a higher impost when they export to the US.
Some companies have clauses in their client contracts that allow tariff costs to be passed through.
Others say that owing to extravagant margins, a 10% impost on the landed goods is like a pimple on the bottom of an elephant, the Republicans' motif.
The maker of specialist industrial lighting, FOS Capital (ASX:FOS) says its US exports are “favoured by engineers and architects for their quality and high performance” and are not price sensitive.
Scenario five: Trump blinks
Hang on! He has.
There’s the wee matter of the 125% punitive impost on China – which in ACTU circles is called an ambit claim.
The delicate matter will be negotiated as US consumers realise how much dearer their smart phones will be.
Ostensibly, the tariffs on other countries above the 10% baseline are postponed for 90 days, but the delay looks more like a face-saving shelving of them altogether.
Scenario six: it’s a healthy correction
Given this week’s partial recovery as at the time of writing, the sell off arguably now looks like a normal correction of a bourse that looked overly frothy.
When a market has run hard, it doesn’t take much for an excuse for a sell-off.
Mind you, the ‘vibe’ was similar leading up to the 1987 share cash and the start of the 2007 global economic crisis.
But investors are banking on a repeat of the 2021 pandemic ‘flash crash’ when stocks recovered within months.
Scenario seven: Trump’s master plan actually works
America’s rustbelt industries creak back to life after being applied a liberal dose of WD-40 – a.k.a. tariff lubrication.
(Aptly, WD-40 is proudly made in San Diego, California).
The government reaps its billions from tariffs and the resulting tax cuts results in a trickle-down economic boom.
In the meantime, employment surges as footwear makers move their manufacturing from Ho Chi Minh City to Shoe City (Brockton, Massachusetts, as it was formerly known).
Some may say that pigs might fly, but in these dark times we really need to eliminate the negative.
This story does not constitute financial product advice. You should consider obtaining independent advice before making any financial decision.
Originally published as Criterion: Turf the Trump tariff trash, here are seven reasons why everything will be OK
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