Tariff man Trump & Australian exports, the RBA, the $A & record gold prices

Dr Shane Oliver, Head of Investment Strategy & Chief Economist at AMP, discusses tariffs.

Key points

• Trump’s tariff war has potentially another 6-9 months to go at least. This poses an ongoing threat to shares, but their relative resilience so far risks emboldening Trump to do even more.
• Even if Australian exports are not exempted from US tariffs the direct economic impact will be minor eg, steel and aluminium exports to the US are just 0.03% of Aust GDP.
• The RBA is expected to start cutting interest rates next week and trade war uncertainty adds to the case to cut.
• It could take till 2032 before Australian real wages get back to 2020 levels. Decent economic reforms could speed this.

Introduction

This note takes a look at some of the main questions investors have in a simple Q&A format, particularly around tariffs, the RBA and gold.

How long will the threat from Trump’s tariffs last?

So far, Trump has announced 25% tariffs on Canada and Mexico (then delayed them a month), a 10% tariff on China (which has commenced but may still be changed) and a 25% tariff on steel and aluminium applying to “everybody” which “may go higher”. And he is still vowing “reciprocal tariffs” (“they charge us. We charge them.”), tariffs on the EU and tariffs on other industries like cars, pharmaceuticals and semi-conductors and he is likely to do more after 1 April once his trade reviews are complete. All of these could have various twists and turns subject to deals and Trump’s whims and as such it feels very much like 2018 only this time Trump is moving faster, presumably because the US economy is now stronger, his administration is better organised, he wants revenue to pay for income tax cuts and he wants any pain over by next year’s mid-term elections.

What’s more, the motivation for the tariffs looks changeable with some justified by geopolitical aims like curtailing immigrants and drug flows, some aimed at reducing US trade deficits and some aimed raising revenue and shifting production back to the US. This implies some may be negotiated away eg the delayed tariffs on Canada and Mexico but others may end up being permanent (eg those on steel and aluminium and likely China and Europe). Trying to work out what will be permanent and what is not will be hard, resulting in uncertainty.