The US presidential race: What it means for Australia’s economy

As Australia looks ahead to the next United States presidential election, the potential outcome – a Kamala Harris presidency or a return of Donald Trump – would have very different impacts on our economy. Both candidates’ policies could significantly impact trade, currency markets, and overall economic relations between our nations.

The Trump Factor

A second Trump presidency could bring several challenges:

1. A weak US dollar: Trump’s goal of weakening the US dollar would have mixed effects. US products would be cheaper for us to buy and the US would become a far more attractive destination for Australian tourists. However, it would make Australian exports more expensive in the US, and potentially reduce demand for them. In addition, his methods to achieve a weaker dollar remain unclear and if, for example, he has to persuade the US Federal Reserve to print more money, would likely disrupt global currency markets.

2. Trade troubles for Australia: Trump’s “America First” approach could make it harder for Australian businesses to access US markets. Our farmers, manufacturers, and service providers might find themselves facing tougher barriers.

3. Inflation concerns: Trump’s tendency towards lower taxes and pressure for lower interest rates could reignite global inflation. This might force the Reserve Bank of Australia to raise interest rates.

4. China relations: An escalation in US-China tensions could put Australia in a difficult position, potentially disrupting trade with our largest partner.

The Harris Approach

A Harris presidency is likely to continue many of Biden’s policies but with a more progressive bent.

1. Trade stability: Harris would probably maintain a more predictable trade policy, benefiting Australian exporters through greater certainty.

2. Green light for green energy: Her emphasis on clean energy could impact demand for Australian fossil fuel exports, but might create opportunities in renewable energy sectors and increase demand for green energy minerals.

3. Australia as a tax haven?: Harris’s support for higher US corporate tax rates could make Australia more attractive for international businesses.

4. Boost for Australian healthcare products: While primarily a domestic US issue, Harris’ push for universal healthcare could indirectly benefit Australian pharmaceutical and medical technology companies operating in the US market.

Key challenges for Australia

Regardless of the outcome, Australia will need to navigate several economic challenges:

• Exchange rate volatility: Either candidate’s policies could lead to significant fluctuations in the exchange rate, affecting trade and investment flows.

• Stubborn inflation: An overheating US economy would impact the inflation rate in Australia.

• The need for trade diversification: The uncertainty in US trade policy underscores the need for Australia to continue diversifying its trade relationships.

• Mixed news for some sectors of our economy: Industries such as agriculture, energy, and manufacturing may face different prospects depending on US policies on trade, climate change, and technology.

• Change in investment flows: Changes in US corporate tax rates and regulations could shift patterns of international investment, affecting capital flows to and from Australia.

• Impact on global economic sentiment: Trump’s approach is often unpredictable while Harris tends have a more traditional approach. Both could influence global economic sentiment, indirectly impacting Australia’s growth prospects.

In conclusion, Trump’s policies generally pose more significant risks to Australia due to their potentially disruptive nature. Harris’ approach, while not without its own challenges, suggests more stability and predictability in economic relations.

Nerida Conisbee
Ray White Group
Chief Economist