With Donald Trump now the United States President-elect, AMMA principal adviser – industry and economic policy, Tristan Menalda, discusses what a Trump presidency means for the Australian resources industry.
SIMILAR to BREXIT, when voting started to favour US presidential nominee Donald Trump last week, immediate panic engulfed the world’s financial markets.
Markets in the United States, Europe and Asia nosedived on the news of Trump’s election. In Australia, the ASX fell by more than $80 billion, recovering to a daily trading loss of $35 billion. A day later, recovery and optimism started to occur and markets rebounded.
Aside from the stock exchange, the Trump win will impact the Australian resource industry, but there are varying opinions as to how, and how significant the impact will be.
Two key policies of the President-Elect, if implemented, will fundamentally impact our sector.
In the lead up to the election, Mr Trump labelled climate change a ‘hoax’, promised to ‘cancel’ the Paris Agreement, and repeatedly pledged to roll back energy regulations and strengthen the US coal industry. This could potentially increase competition for Australian coal exports.
Mr Trump also pursued a nationalistic and inwards looking approach to economic and foreign policy; highly geared around US import and export trade. On multiple occasions he expressed his displeasure with trade deals the US has or is expected to enter into, including the Trans Pacific Partnership (TPP).
Of particular relevance to Australia’s resource sector, Mr Trump has labelled China a ‘currency manipulator’ and threatened to apply 45 per cent tariffs on Chinese imports. Were this to come to pass, it would have massive implications for Australian resource exports as it will make end-products sold in the US, transformed in China from Australian commodities, more expensive and less competitive.
As a result (based on public information alone – without any other actions), Australian exports would likely fall. This would be of detriment to Australia’s exchange rate, government revenue inflows, commodity exporter profitability as well as jobs and living standards.
However, China would be unlikely to sit on its hands if the US imposed such significant additional tariffs on its exports. As China holds over $1.2 trillion of US government debt and is also a leading world power, it would seem well equipped to defend its bilateral trade and reduce any adverse implications of changes in US trade policy.
It is also widely forecast that president-elect Trump will seek to implement a expansionary policy designed to accelerate the US national economy. Increased access to resource commodities (and end products) is likely to be critical to facilitating and stimulating expansionary measures, which would be a more positive sign for Australian commodity exporters.
Such potential positives, weighing against the wider reporting of the negatives and the uncertainty created by a change of regime , were a key reason why many markets around the world rebounded rapidly following Trump’s election win and why there has recently been significant upswing in confidence levels in commodity markets and in resource reliant domestic economies like Australia.
Tristan Menalda can be contact via [email protected] or (03) 9614 3970.