There has been a lot of concern about what’s happening in the US financial markets now and how that will impact the Australian economy and businesses.
AMP Capital chief economist Shane Oliver says none of this will have much of an impact on Australia. There are several reasons for that. The global economy, he says, should avoid recession. Also, only 5% of our exports go to the US and the lower Aussie dollar will provide a shock absorber.
But UNSW Business School’s Dr Scott French disagrees. He says the Trump administration’s new tariffs will significantly affect markets for the inputs that businesses need to produce goods and services. While the tariffs will directly affect Australian metal producers, they will indirectly impact Australian miners, who produce the raw materials used in metals manufacturing, among others.
“But due to the complexity of global supply chains, it's hard to predict precisely where the impact will be greatest, but the overall effect is going to be negative,” he says.
While about 15% of Australian aluminium and steel exports go to the US, he says the broader effects of the tariffs on the global market could prove to be more consequential for Australian producers.
French say that aluminium and steel are only a fraction of the size of Australian mining sector.
“So, if you’re looking at Australia as a whole, the direct effect on miners is smaller,” he says. “But it’s a bigger overall sector, so when you multiply that out it’s probably the bigger of the two impacts for Australia overall.”
And here’s an important part.
Tariffs will also affect the Chinese economy negatively, and China is our biggest trading partner.
“China is such a big importer of iron ore and other minerals, that anytime the Chinese economy slows down, demand for these things also goes down,” he says.
“And I expect the tariffs to reduce overall demand for steel and aluminium because they’re going to get more expensive for US manufacturers."
The Australian Industry Group however goes further.
True, it says Australia exports around $20 billion to the US annually, accounting for only 4% of our exports and 0.8% of GDP. These exports will now all face at minimum the 10% baseline tariff, with higher rates for those affected by one of the product-specific tariffs. It points to Treasury analysis which suggests the overall impact on the Australian economy will only be slight – reducing GDP by 0.1% in 2025 and 0.2% in 2026.
“But for the affected industries, the impact will be anything but slight. Australia’s exports to the US are dominated by advanced manufacturing products: elaborately transformed metals, machinery, chemicals and consumer goods,” AIG says. “These account for just over half of Australia’s exports to the US. They are also highly reliant on the US market, which accounts for around a third to half of their exports."
“This reveals the impact of US tariffs on Australian exports will be deep-but-narrow and focused on advanced manufacturing. Very few other industries have significant US exports, and none rely on the US market for such a large share of their export sales. While the overall impact on the Australian economy may be mild, advanced manufacturers will feel a much larger burden."
“Alongside the direct impact on our exports, there are also a range of indirect disruptions being felt on the import side of the trade ledger. This is due to disruptions which the US tariffs impose on the normal operation of global industries. As firms adjust their trade activities around the new US tariffs, this creates complex changes in supply chains which can produce secondary knock-on effects.”
If you need any advice on how the US market and tariffs will affect your business, contact your hmh Advisor.