Treasury warns of economic ripple effects for Australia from US electoral politics – InvestorDaily

At a Senate budget estimates hearing on Wednesday, Treasury Minister Steven Kennedy confirmed modeling had identified significant ripple effects for Australia, particularly if US trade tariffs were to rise sharply.

While Kennedy refrained from making direct comments about the US presidential candidates, focusing instead on their policies, former President Donald Trump threatened to impose higher trade tariffs on US partners, including a potential 60 percent tariff on China, Australia’s largest export market.

In response to a question from Senator Jane Hume, Kennedy said the Treasurer had instructed the Treasury Department to conduct modeling for the government because of the importance of US elections.

“If there are any significant changes to the pathway and potential policies, we will make recommendations to the government,” he said.

“There are some policies that US election supporters have announced, including, for example, tariff increases and other types of changes, and we thought it would be worthwhile for the government to understand the impact of these policy changes not only on the US, but also on our major trading partners. China for example, and then what it could potentially do for Australia.”

Providing more detail on the modeling results, Kennedy said the Treasury had concluded that sharp tariff increases would not only impact the US and Chinese economies, but would also create inevitable flow-on effects for Australia.

“Broadly speaking, the imposition of trade restrictions, such as tariffs, typically results in slower economic growth and higher inflation,” Kennedy said.

“The implications for Australia are more related to economic growth because of course there are implications for China and their demand for our goods.”

When asked by Hume whether the Prime Minister had been informed of the modeling, Kennedy said that the Cabinet had been informed, and therefore so had the Prime Minister.

Last month, Treasurer Jim Chalmers told the media that the government was doing modelling, noting that “any diligent government” would look at different scenarios when it comes to election results in “a country as big and important as the US”.

“And that’s what we do,” Chalmers said.

“We know that there will be a change of administration in the United States, and so we are thinking through the consequences of that.”

At the time, Chalmers stressed that Australia “will work with whoever the Americans choose to lead them” and also emphasized the serious consequences of trade wars.

“Australia has been and will continue to be one of the biggest beneficiaries of well-functioning global markets. Trade wars can be costly for countries like ours… We need more engagement with the world, not less. That’s our whole policy,” Chalmers said.

Asked on Wednesday whether the Coalition had concerns about the impact both presidential candidates’ promises would have on the global economy, Shadow Treasurer Angus Taylor did not answer the question directly, instead turning to his current concerns about the local economy.

“In terms of the US-Australia relationship, I think we will matter more than the outcome of any single election, no matter what it is,” Taylor said.

“A strong US economy is good for Australia and good for the world. And I will tell you that we have seen a strong US economy, there is no doubt about it. In all respects it is stronger than what we have in Australia. This highlights the failure of the current government.”