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]
Rabobank has also weighed in on the situation, suggesting that Trump's return as President-elect could disrupt both New Zealand and Australian agriculture. The expected shifts in U.S. policy may create a complex landscape for global food and agriculture trade, with potential disruptions to trade relationships, shifts in export demand, and rising costs for consumers and businesses. Rabobank anticipates that Trump's policies may lead to higher inflation, slower GDP growth, and increased budget deficits. [f95f92ab]
The proposed tariffs, including a universal tariff of 10-20% and up to 100% on certain Chinese imports, could pressure U.S. consumers to seek value, potentially benefiting New Zealand and Australian grain, oilseed, dairy, and beef exports due to a stronger U.S. dollar. However, increased U.S. tariffs on countries with trade surpluses could negatively impact those exporters, reducing demand for New Zealand and Australian imports. [f95f92ab]
Geopolitical shifts may also require closer alignment with the U.S., jeopardizing exports to China. Agribusiness sectors in both countries are advised to focus on profitability, optimization, and diversification to navigate these challenges effectively. [f95f92ab]
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]
In Kansas, farmers are also bracing for the impacts of Trump's presidency. Despite a majority of farmers voting for Trump, many experts warn that his economic agenda could be detrimental to American agriculture. Since 2000, 398 million acres have been added for food production, but slowing population growth in China poses challenges for U.S. agricultural exports. Geopolitical events, such as the Ukraine-Russia war, further threaten U.S. farmers. Trump's isolationist policies and tariffs have already had significant impacts, and the need for a global perspective to maintain competitiveness is becoming increasingly urgent. [15065e63]
Ben Palen, a fifth-generation farmer and agriculture consultant, emphasizes that credible economists predict detrimental consequences for agriculture under Trump's leadership. Ad hoc disaster relief programs created during Trump's first presidency may not be sufficient to address the challenges ahead. [15065e63]
In a recent development, China's Politburo announced a 'moderately loose' monetary policy for 2025, which has provided a boost to the Australian dollar (AUD). Following this announcement, iron ore prices reached two-month highs above $106.25, and the AUD/USD traded in a range of 0.6450-0.6550 before dropping to 0.6373. Australia's Q3 GDP rose by 0.3%, with public demand growing by 2.2%. Market expectations for RBA rate cuts have increased, with two cuts anticipated by May 2025. This context adds another layer of complexity to how Trump's policies may interact with global economic trends. [9458dc4b]
Moreover, Goldman Sachs forecasts that China's economy will grow at a slower rate of 4.5% in 2025, the lowest since 2020, primarily due to the high U.S. tariffs disrupting its export-driven economy. In response to this economic decline, Beijing has announced a $1.4 trillion stimulus package aimed at mitigating the adverse effects of these tariffs. Experts suggest that further stimulus measures may be necessary as Trump's tariffs could cut China's growth by at least 70 basis points. In 2023, bilateral trade between the U.S. and China reached $575 billion, with the U.S. facing a deficit of over $279 billion. China is projected to account for 21% of global economic activity from 2024 to 2029, highlighting the significant implications of U.S. trade policies on the global economy. [c8304a4a]
In light of these developments, Yves Bonzon, Julius Baer’s global chief investment officer, has argued that tariffs are ineffective in a multi-polar world, citing the counterproductive nature of tariffs during Trump's first term. He notes that in 2023, China's largest trading partner was the ASEAN bloc, with $523.7 billion in exports, indicating a shift in global trade dynamics. Bonzon warns against front-running U.S. policies and discusses China's balance sheet recession, predicting modest growth ahead. He emphasizes that while Julius Baer remains positive on equities and Bitcoin, the broader implications of tariffs on global trade must be carefully considered. [e8286b61]
Richard Franulovich and Robert Rennie from Westpac highlight that for every action in economies, there is a reaction. They note that key themes for 2025 will include Trump's agenda and China's response, with U.S. tariffs on Chinese imports expected to have indirect effects on Australia. A forecasted 9% fall in commodity prices and higher global interest rates post-pandemic are anticipated, alongside a U.S. federal deficit projected at 6% of GDP. The RBA may cut rates in the first half of 2025, but fiscal consolidation risks in Europe could complicate matters. The Australian exchange rates are expected to be influenced by these global forces, further complicating the economic outlook. [11d659b1]
Clyde Russell from The Hindu has also noted that Trump's return to the U.S. presidency and China's struggling economy will significantly influence global commodity markets in 2025. Trump's potential tariffs could reach 60% on China and 20% on other nations, risking global economic growth and inflation. The uncertainty surrounding these policies is palpable as traders await clarity on actual implementations. Despite these challenges, there are signs of improvement in China's economy, with factory activity expanding in November 2024. However, China's price sensitivity as a commodity buyer is increasing, leading to a 2.1% drop in crude oil imports in 2024. The overall outlook for 2025 remains marked by high uncertainty and the need to focus on implemented policies rather than mere rhetoric. [6f6e4b81]