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Sunday, Mar 09, 2025
Outside the box.
Trade War Implications: How US Tariffs May Affect Australia
Analysis of the potential repercussions of the US trade war on Australia's economy and consumers.
Economists have raised alarms regarding the repercussions of ongoing trade wars initiated by the United States against its major trading partners, warning that these disputes could create significant disruptions throughout the global economy.
Recent actions have seen heightened tensions, particularly as the US announced a doubling of tariffs on Chinese goods to 20 percent, with China pledging to respond firmly to these measures.
Meanwhile, Mexican President Claudia Sheinbaum has indicated that retaliatory actions will be forthcoming.
In response to a portion of the tariffs, US President Donald Trump announced a temporary suspension of new tariffs that would last approximately a month.
In Canada, Prime Minister Justin Trudeau confirmed that while some countermeasures may be paused, the country would remain in a trade conflict with the US for the foreseeable future, despite potential exemptions for certain sectors.
The nature of a trade war is characterized by reciprocal trade restrictions between countries.
Flavio Menezes, an economics professor at the University of Queensland, outlined that such conflicts lead to reduced trade volumes, increased consumer prices due to higher costs of imported goods, slowed investment, and overall economic detriment.
He emphasized that, while the US may experience short-term economic growth, this could be accompanied by higher inflation resulting from increased tariffs on imports.
Professor Tim Harcourt, chief economist at the University of Technology Sydney, described trade wars as a ‘tit for tat’ situation that ultimately harms the global economy.
He noted that imposing tariffs effectively raises costs for consumers, workers, and farmers, indicating that such economic disputes result in no winners, as all parties face losses.
The ramifications of US trade policies extend globally and may significantly impact Australia.
Experts assert that the negative effects of US tariffs will initially affect major trading partners like China, Canada, and Mexico before cascading to Australia and other nations through indirect effects.
For instance, if the US-China trade conflict adversely affects the Chinese economy, Australia could see reduced exports as China diminishes its imports.
During trade wars, adaptation becomes essential for both consumers and retailers due to expected shortages and delays in the importation of goods.
Retailers may respond to increased costs by raising prices or limiting purchase quantities to manage supply chain demand.
Menezes highlighted that tariffs can create inefficiencies leading to a misallocation of resources, which could stifle economic growth in the long run.
In addition to consumer price impacts, experts suggest that trade wars may influence stock market performance and subsequently affect superannuation funds in Australia.
Harcourt pointed to the potential for reducing share prices amid fears of a global economic downturn, although specific sectors, such as Australian steel producers like Bluescope, might experience gains due to tariffs that raise product prices.
This volatility in the stock market is crucial for superannuation funds, which typically allocate approximately 60 percent of their investments to shares, thereby linking their performance directly to broader market fluctuations.
AMP's chief economist, Shane Oliver, noted that the historical tendency for shares to yield higher long-term returns also comes with increased short-term volatility, posing risks to superannuation fund stability amid fluctuating market conditions.
Recent actions have seen heightened tensions, particularly as the US announced a doubling of tariffs on Chinese goods to 20 percent, with China pledging to respond firmly to these measures.
Meanwhile, Mexican President Claudia Sheinbaum has indicated that retaliatory actions will be forthcoming.
In response to a portion of the tariffs, US President Donald Trump announced a temporary suspension of new tariffs that would last approximately a month.
In Canada, Prime Minister Justin Trudeau confirmed that while some countermeasures may be paused, the country would remain in a trade conflict with the US for the foreseeable future, despite potential exemptions for certain sectors.
The nature of a trade war is characterized by reciprocal trade restrictions between countries.
Flavio Menezes, an economics professor at the University of Queensland, outlined that such conflicts lead to reduced trade volumes, increased consumer prices due to higher costs of imported goods, slowed investment, and overall economic detriment.
He emphasized that, while the US may experience short-term economic growth, this could be accompanied by higher inflation resulting from increased tariffs on imports.
Professor Tim Harcourt, chief economist at the University of Technology Sydney, described trade wars as a ‘tit for tat’ situation that ultimately harms the global economy.
He noted that imposing tariffs effectively raises costs for consumers, workers, and farmers, indicating that such economic disputes result in no winners, as all parties face losses.
The ramifications of US trade policies extend globally and may significantly impact Australia.
Experts assert that the negative effects of US tariffs will initially affect major trading partners like China, Canada, and Mexico before cascading to Australia and other nations through indirect effects.
For instance, if the US-China trade conflict adversely affects the Chinese economy, Australia could see reduced exports as China diminishes its imports.
During trade wars, adaptation becomes essential for both consumers and retailers due to expected shortages and delays in the importation of goods.
Retailers may respond to increased costs by raising prices or limiting purchase quantities to manage supply chain demand.
Menezes highlighted that tariffs can create inefficiencies leading to a misallocation of resources, which could stifle economic growth in the long run.
In addition to consumer price impacts, experts suggest that trade wars may influence stock market performance and subsequently affect superannuation funds in Australia.
Harcourt pointed to the potential for reducing share prices amid fears of a global economic downturn, although specific sectors, such as Australian steel producers like Bluescope, might experience gains due to tariffs that raise product prices.
This volatility in the stock market is crucial for superannuation funds, which typically allocate approximately 60 percent of their investments to shares, thereby linking their performance directly to broader market fluctuations.
AMP's chief economist, Shane Oliver, noted that the historical tendency for shares to yield higher long-term returns also comes with increased short-term volatility, posing risks to superannuation fund stability amid fluctuating market conditions.
