Goldman Sachs has recently provided a comprehensive analysis of the potential impacts of former President Donald Trump's economic policies on both the U.S. and Australian economies. On November 17, 2024, the firm revised its economic forecast for Australia, lowering the 2025 GDP growth estimate from 2% to 1.8%. This adjustment is largely due to the anticipated negative effects of Trump's proposed 60% tariffs on China, which are expected to reverberate through the Australian economy. Elevated interest rates, currently at 4.35%, have also contributed to a slowdown in consumer spending, complicating the economic landscape further. [9add3e03]
Goldman Sachs predicts that the Reserve Bank of Australia (RBA) will begin cutting rates starting February 2025, with expectations that the rate will reach 3.25% by November of that year. This potential easing of monetary policy is seen as a necessary response to stimulate economic activity amidst the challenges posed by high tariffs and reduced consumer confidence. [9add3e03]
In the U.S., Goldman Sachs forecasts a GDP growth of 2.5% in 2025, attributing this optimism to tax cuts and deregulation from the Trump administration. However, the firm warns that aggressive tariffs could dampen this growth, projecting a small net negative impact on GDP growth of 0.2 percentage points in 2025. Additionally, tariffs could raise inflation from 2.0% to 2.4%, with a potential across-the-board tariff of 10% expected to slow growth by 1 percentage point in 2026. [9add3e03]
On November 20, 2024, Donald Trump was elected for a second term, proposing tariffs of 10-20% on all imports, including Australian goods, and maintaining the 60% tariffs on Chinese imports. This has significant implications for the Australian sheepmeat trade, as Australia exports 24% of its lamb and 8% of its mutton to the U.S., valued at approximately $1.2 billion for the 2023-24 period. Currently, the Australia-U.S. Free Trade Agreement (AUSFTA) imposes no tariffs on sheepmeat exports to the U.S. [459dd04f]
Craig Hill from Independent Australia emphasizes that Trump's proposed 10% tariffs could negatively impact the Australian economy by reducing exports to the U.S. in agriculture (including beef, wine, and dairy), minerals (like iron ore and LNG), and manufactured goods. This could lead to a potential slowdown in GDP growth due to decreased export revenue, and there is a risk of depreciation of the Australian dollar. Retaliatory tariffs from Australia could further increase domestic prices, exacerbating the economic strain. [f47208ea]
However, a recent analysis by CBA's economics team indicates that the impact of these tariffs may be minimal. They concluded that while the tariffs could be disinflationary for Australia, the overall threat to GDP growth is limited, with a potential reduction of only 0.1 percentage points in 2025 and 2026. The U.S. is Australia's fifth-largest export destination, and the larger threat to the Australian economy may stem from a slowdown in China, which accounted for 32.6% of Australia’s export values in 2023. [85bffe47]
China remains Australia's largest mutton market, holding a 33% market share, and is the second-largest market for Australian lamb. The previous U.S.-China trade disputes had notably boosted Australian lamb exports by 26% from 2018 to 2019. Furthermore, the Middle East accounts for nearly 30% of Australian lamb exports, which have increased by 38% year-on-year. In response to these dynamics, Australia and the UAE signed a Comprehensive Economic Partnership Agreement (CEPA) aimed at removing tariffs on Australian exports, including sheepmeat. [459dd04f]
As the U.S. and Australia navigate these economic challenges, the implications of Trump's tariffs and policies will likely be felt across various sectors, impacting trade relationships and consumer behavior in both countries. Hill also notes the need for Australia to diversify its trade relationships with China, the EU, and Southeast Asia to mitigate potential job losses in export-reliant sectors. [f47208ea]