By Shane Wright
The Australian economy has been destabilised by incoming US president Donald Trump weeks before he returns to the White House after declaring a tariff war on three of America’s biggest trading partners.
The Australian dollar slid to its lowest level in seven months while billions of dollars were wiped from the ASX after Trump used social media platform Truth Social to declare he would sign an executive order on his first day back in office imposing a 25 per cent tariff on Canada and Mexico and a separate 10 per cent tariff on imports from China.
Donald Trump has threatened to impose tariffs on America’s three largest trading partners on the day he returns to office in January.Credit: AP
Trump accused the three nations of contributing to the widespread abuse of fentanyl, a synthetic opioid that last year claimed the lives of more than 72,000 Americans.
Disregarding the free trade deal he renegotiated with Canada and Mexico when he was last in office, Trump said the tariffs on the two countries – the two largest export markets for American goods – were due to “thousands of people” entering from both countries and bringing with them “crime and drugs at levels never seen before”.
“This tariff will remain in effect until such time as drugs, in particular fentanyl, and all illegal aliens stop this Invasion of our country!” he said.
“Both Mexico and Canada have the absolute right and power to easily solve this long-simmering problem. We hereby demand that they use this power, and until such time that they do, it is time for them to pay a very big price!”
Canada’s single largest export to the US is petroleum. In 2023, the US bought $US129 billion worth of Canadian crude oil. A 25 per cent tariff on oil would hit refineries across the US and feed inflationary pressures through the entire American economy.
The US and Canadian auto industries are also closely linked, providing new cars and parts.
The US is Mexico’s largest export market, including for computers, cars and household appliances.
Trump also said he would impose an “additional” 10 per cent tariff on imports from China because of its failure to stop fentanyl from entering the US. He has previously pledged to slap 60 per cent tariffs on Chinese imports.
Trump’s tariff announcement wiped billions from the Australian sharemarket.
“Representatives of China told me that they would institute their maximum penalty, that of death, for any drug dealers caught doing this but, unfortunately, they never followed through, and drugs are pouring into our country, mostly through Mexico, at levels never seen before,” he said.
“Until such time as they stop, we will be charging China an additional 10 per cent tariff, above any additional tariffs, on all of their many products coming into the United States of America.”
The Australian dollar lost half a cent immediately after Trump’s posts but gradually recovered through afternoon trade. But the ASX200, which opened around record highs on Tuesday, lost almost half a per cent in value.
ANZ chief economist Richard Yetsenga says Trump’s comments may provide the first sense of what will be seen over the next four years.
Prominent Trump supporter Elon Musk, who has been appointed to co-head a new Department of Government Efficiency, said on his X account that the tariff threat would be highly effective, noting that the price of fentanyl would rise sharply.
ANZ chief economist Richard Yetsenga said that as a small, open economy, Australia had much to lose from a tariff war that would drive up prices and disrupt the free flow of trade around the world.
Yetsenga said the comments, and the approach taken by Trump, were “only the beginning” for what could be another four years of economic disruption.
“This is the United States increasing tariffs on its three largest trading partners. That represents a discrete change in global trade policy,” he said.
Credit: Matt Golding
“He does take a transactional approach to many things, so this may be the first sense of what we will see under Trump 2.0.”
China’s ambassador to Australia, Xiao Qian, said US trade policy was a key part of the relationship between Australia and China.
“US policy on trade with China, with other countries as well, will have an impact and that is an important element that we have to consider,” he said.
But some analysts said Trump’s comments were a warning shot rather than a final position.
American economist Betsey Stevenson was one to doubt whether Trump would go through with the tariffs given their inflationary impact.
“Trump will not do big tariffs, but he definitely will say that he did. Whatever policy passes will have loopholes big enough to push a container ship or a huge fresh vegetable truck from Mexico through,” she posted on X.
Billionaire hedge fund manager Bill Ackman, who endorsed Trump this year, said the tariffs were a threat to force action that benefited Americans.
“[President Trump] is going to use tariffs as a weapon to achieve economic and political outcomes which are in the best interest of America, fulfilling his America first policy,” Ackman posted to social media.
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