Four ways Australians will feel Trump’s tariffs on China

President Donald Trump came to office promising tariffs would make Americans as “rich as hell”, bring back manufacturing companies and jobs to the United States, all while improving the budget bottom line.

While most economists believe those tariffs will leave Americans worse off, his 10 per cent hit to all Chinese imports to the United States stands to make Australians poorer, would hurt the nation’s biggest exporters, increase uncertainty for investors and even make it more expensive for travellers to the United States.

Donald Trump says he loves the word tariff. Australians may not be so enamoured.Credit: nna\NPearson

This week, Trump announced his plan to hit Canada and Mexico with 25 per cent tariffs, plus the 10 per cent impost on China. The tariffs on America’s northern and southern neighbours have been suspended for 30 days but the hit to China is underway.

Beijing responded with a 15 per cent tariff on American coal and liquefied natural gas plus 10 per cent imposts on farm equipment, crude oil and pickup trucks from February 10.

China also started an antitrust investigation into Google and imposed export controls on critical minerals including tungsten, tellurium and ruthenium which are used in the US for everything from the manufacture of tyres to important steel alloys.

Two American companies were added to China’s “unreliable entity list”, which opens them up to penalties or restrictions. The two firms were PVH Group, which owns high-end brands including Tommy Hilfiger and Calvin Klein, plus Illumina Inc which is a specialist biotech company.

On Wednesday, America’s postal service suspended accepting parcels from China in a move that will affect millions of US consumers waiting for cheap Chinese-made goods.

Here are the four key ways in which Trump’s tariffs on China will affect Australians.

The Australian economy

Last year, Australia exported $219 billion worth of goods and services to China. The second-largest market was Japan, at $90.1 billion. The United States was the fifth-largest market, at $33.6 billion.

Anything that slows the Chinese economy – such as reducing its exports to the US, or pushing up the prices of American imports – has a direct impact on the Australian economy.

Rabobank senior macro strategist Benjamin Picton said Australia and New Zealand were at risk during any period of increasing trade barriers such as tariffs. Both countries had enjoyed strong growth during trade liberalisation in the second half of the 19th century and since the early 1980s, but struggled during periods of increased protectionism.

“A tariff-induced slowdown in the Chinese economy is likely to be a significant negative shock for Australian growth unless the Chinese central government enacts further stimulus to offset the effects of the tariffs,” he said.

The Australian dollar

In 2018, after the US imposed its targeted tariffs on China (and American official interest rates increased to 2.25 per cent) during Trump’s first term, the Australian dollar suffered a 13 per cent slide in value.

Since Trump’s most recent tariff announcement, the dollar has fallen back to its lowest level since 2020.

Australian exporters should be better off with the weaker dollar, as it makes our goods and services cheaper in US terms.

But a lower dollar should make the cost of goods imported into Australia more expensive, adding to inflation pressures. For those thinking of a quick trip to the United States, the lower purchasing power of the Australian dollar makes that holiday to Disneyland even more costly.

Australian tourists heading to Disneyland will find it more expensive to enjoy the company of Mickey and Goofy.Credit: nna\sswain

“[A lower dollar] has the potential to provide a boost to growth by increasing export earnings and encouraging local consumers to substitute expensive imports for locally produced alternatives where available, but it could also stoke inflation pressures via higher prices for imported goods,” Picton said.

Interest rates

For the millions of Australians with a mortgage, the biggest question is whether the tariffs on China will affect local interest rates.

Renowned Australian economist and former Reserve Bank board member Warwick McKibbin, who has done extensive modelling of the fallout from Trump’s economic agenda, told this masthead that inflation would be fuelled by tariffs.

“This isn’t good for anyone with a mortgage or hoping for lower interest rates,” he said.

But if the tariffs slow the economy, the Reserve Bank may have to cut rates.

“Our assessment is that Trump’s trade war adds to the case for a rate cut because it’s more of a threat to growth than inflation,” AMP chief economist Shane Oliver said.

Asset prices

While not directly related to the war with China, Trump’s tariff agenda has already provided a wild ride for Australian investors.

The ASX200 climbed to an all-time high in the week before Trump made his tariff announcement, rising 2.6 per cent in the fortnight since the president was sworn back into office.

But investors were clearly spooked by the tariff decision and the ASX200 lost 2.5 per cent in the day after Trump announced the hits to China, Canada and Mexico. The measure of sharemarket volatility has soared over the past week.

It’s not just the traditional investment area that’s been hit by the uncertainty caused by the Trump tariffs.

Cryptocurrencies had enjoyed strong growth in values since Trump took office. Bitcoin, for instance, had climbed by 11 per cent in Australian dollar terms in the fortnight leading up to the tariff announcement.

But that had almost completely unwound after Trump revealed the details of his tariff plans.

Uncertainty, never a positive for investors, is likely to be an ongoing issue with Trump threatening to extend tariffs to a range of other nations.

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