Trump’s hardline on tariffs jolts ASX, currency and bond markets
Stocks have fallen and the Australian dollar has been pummelled by fear of a global trade war after US president elect Donald Trump announced a hardline tariff plan.
Stocks have fallen and the Australian dollar has been pummelled by fear of a global trade war after US president elect Donald Trump vowed to tariff Chinese goods by an additional 10 per cent and slap 25 per cent tariffs on goods from Mexico and Canada in a bid that he said would clamp down on migrants and illegal drugs.
A day after reacting positively to weekend news of Trump’s nomination of hedge fund legend Scott Bessent as Treasury Secretary – a move that was expected to lessen inflation risks associated with Donald Trump’s policy plans - investors were roiled by his hardline approach.
Made via his Truth Social network, the tariff announcement rocked financial markets on Tuesday, with Trump saying China had failed to follow through on promises to institute the death penalty for traffickers of fentanyl, writing that “drugs are pouring into our Country, mostly through Mexico, at levels never seen before”.
“Until such time as they stop, we will be charging China an additional 10% Tariff, above any additional Tariffs, on all of their many products coming into the United States of America,” the post read.
In another post, he vowed to hit Mexico and Canada with a 25 per cent tariff on all of their goods via an executive order that will take effect immediately after his inauguration on January 20 next year.
The Australian dollar fell 1.1 per cent to a four-month low of USS64.34c as the US dollar rose against most currencies.
The Canadian dollar dived 1.4 per cent, the Mexican peso dropped 2.2 per cent and the Chinese yuan lost as much as about 0.4 per cent against the US dollar.
In the stock market, Australia’s S&P/ASX 200 index fell 0.5 per cent to a two-day low of 8372.4 after hitting an intraday high of 8433. US stock index futures fell about 0.4 per cent in after-hours trading.
On Monday, the ASX 200 hit a record high 8462.1 and the Aussie hit a two-week high of $US65.50c.
“In a striking return to hardline policies, President-elect Trump has dramatically escalated tensions with a brash promise to impose a sweeping 25 per cent tariff on all imports from Canada and Mexico the moment he resumes office,” said Stephen Innes Managing Partner at SPI Asset Management.
“This bold declaration shatters any lingering hopes that the new Treasury Secretary, Scott Bessent, might usher in an era of moderation. Initially hailed as a beacon of stability, Bessent’s influence now seems overshadowed by a resurgence of Trump’s uncompromising ‘America First’ doctrine, which starkly excludes even the closest of allies from its protective embrace.”
Bond markets were also hit by concern that tariffs on China, Mexico and Canada would lift inflation.
After diving 13.6 basis points to 4.27 per cent on Scott Bessent’s nomination over the weekend, the global benchmark US 10-year Treasury bond yield hit 4.2926 per cent in Tokyo.
Gold prices found fleeting support on Mr Trump’s comment while copper prices fell.
Spot gold bounced from $US2,2605.34 to $US2.632.25 per ounce.
COMEX copper futures fell as much as 1.3 per cent to $US4.10.35 per pound.
SPI Asset Management’s Innes said the tariffs could send shockwaves through the bond markets.
“The markets, previously buoyed by the prospect of tempered policies and diplomatic negotiations, now brace for the impact of these severe tariffs,” he said.
“Any semblance of an olive branch has been withdrawn and snapped, casting a long shadow over the initial optimism and challenging the premise of Bessent’s calming presence in an administration known for its unpredictability.
“This stark turnaround serves as a sobering reminder that in the volatile arena of international trade, assurances are fleeting, and the swift stroke of political will can swiftly upend economic diplomacy.“
A former Australian Ambassador to China Geoff Raby said China has been preparing for an eventual the US tariff wall.
“China is trade dependent but it exports to countries all around the world. It has plenty of opportunity to diversify the destinations of it exports to,” he said.
“China has been preparing for a long time for this, focusing its trade increasingly on what’s called the global south. None of this a big surprise.”
Mr Raby, who heads up Geoff Raby and Associates, a Beijing-based business advisory firm, said Mr Trump’s presidency has a “long way to play out.”
“But anything that harms China’s economic growth harms Australia,” he said.
“We send over a third of our exports over to China. If you harm China you harm Australia.”
Meanwhile, business leaders - many who did not want to go on the record - said Australia will be impacted by tariff hikes and a US-China trade war.
However, they were uncertain at how severe the impact would be.
Cofounder and executive chairman of furniture and electrical goods chain Harvey Norman Gerry Harvey said “it will be interesting”.
“If he puts tarriffs on principally China they will be looking to sell a lot of their stuff somewhere else and that might be good for us,” he said.
“Trump got in on the basis he was going to do all of these things. There are a lot of people who will argue that it’s a ctually counter productive for the US.
“We will watch with interest.”
Flight Centre Travel Group managing director Graham Turner said he hoped Mr Trump will moderate his actions in the future.
“If there’s a trade war it’s not going to help us in terms of travel in and out of China which is the main concern we have had,” he said.
“It also will mean there will not be as much trade and as much travel between China and America and we have reasonably sized operations in both.”
Coal Australia chairman Nick Jorss said the new Trump adminstration will place a positive emphasis on energy security, with a particular focus on rel;iable and affordable sources of energy, like coal.
“Australia benefits from a positive trade relationship with the United States and China with coal and the products coal helps manufacture, like steel, being a key part of that,” he said.
“International coal trade helps create Australian jobs and supports the communities our industry relies on.”
Former executive chairman of Metallica Minerals Theo Psaros said an outbreak of a trade war would test the relationship between the US and Australia.
“We have such a long historical relationship that we should be immune to what Trump wants to achieve,” he said.
“It will be a massive challenge to the leadership in Canberra to see that remains in place.”
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