Trump 2.0 > Economic Implications for A/NZ CFOs

Four more years… Leading Economist, Stephen Koukoulas shares with CFO Magazine A/NZ his insights on Donald J Trump’s historic re-election victory and what his second term Presidency could mean both locally and globally for CFOs.

The election of Donald Trump as President of the United States will see a series of policy and economic changes that will disrupt the US economy.

It is too early to be sure whether these disruptions will be a net benefit but from the current perspective, the policy suite of Mr Trump is likely to see greater strength in the US domestic economy, dislocate international trade, perhaps severely, and push inflation higher.

The fall-out from these changes will inevitably impact the Australian and New Zealand economies either directly through a momentum shift in the US economy and its markets or indirectly to the extent the global economy will be feeling the effect of what is shaping up as a tariff and trade war, driven by Mr Trump.

In broad terms, Mr Trump’s “America first” trope means “everyone else second”.

The most obvious examples of this relate to Mr Trump’s current plans to impose across-the-board tariffs on all exports to the US and a pull-back in the US defence engagement around the world.

While some select US industries may potentially benefit marginally in the short run from protectionist policies, the imposition of tariffs will weaken global growth, hurting those businesses that currently export to the US. The tariffs will directly add to costs, inflation in other words, which will have implications for interest rate policies.

Many of the US companies to benefit are structurally weak and globally uncompetitive, which is why they have been shedding jobs. Keeping these companies afloat via a tariff regime could erode productivity, compounding the inflation lift.

In anticipation of a Trump win and since that has been confirmed, government bond yields have risen by around 100 basis points and expectations for interest rate cuts have been scaled back. This is a reflection of the likely Trump agenda.

In response to the imposition of tariffs in the US, there is little doubt that there will be retaliation from other counties , most notably China but also the European Union. This almost inevitable escalation of a trade war will hurt international trade flows which will undermine economic growth, create upside inflation risks from a diminution of competition and risk spilling over to other forms of geopolitical turmoil.

For the likes of Australia and New Zealand, both reliant on exports and international trade for their longer run well being, the effects are likely to be significant. Even if some tariff exemptions with the US are carved out, a weaker global economy and the dislocation of international trade and global economic growth will be a problem for Australian and New Zealand exporters. The negative impact on the Chinese economy, which is already experiencing a period of disinflationary weakness, would further undermine growth.

If in any escalation of the trade ‘war’ into the context of geopolitical positioning sees Australia and New Zealand side with the US, a key ally under the ANZUS defence treaty, possible retribution from China would have a further, deeply negative economic effect. There is a recent example of this with the punitive tariffs imposed by China on Australian wine, barley, lobsters and coal which cost the Australian economy up to $20 billion.

Cuts to company taxes are another aspect of Mr Trump’s agenda. While clearly this is, in isolation, a benefit for US companies, it risks adding significantly to already problematic budget deficits and government debt. On the latest data, the US is running a budget deficit at a massive 7 per cent of GDP with government debt over 100 per cent of GDP.

The proposed cuts to US company tax levels will provide a contrast to the company tax rate in Australia which is 30 per cent for companies with annual turnover $50 million. New Zealand has a company tax rate of 28 per cent. While there are nuances to be made when comparing headline tax rates, these are high on many international comparisons.

Once the Trump cuts take effect it is likely to rekindle a debate about whether the level of company tax needs to be reduced to maintain the international competitiveness of Australian and New Zealand business.

Crypto currencies have already risen strongly in reaction to the US election.

Mr Trump saying said that cryptocurrencies will “define the future” and that he wanted “mined, minted and made in the USA”. He also said that he wanted a national ‘bitcoin stockpile’ as a national security measure.

Even if these objectives are misplaced and have no objective merit, the strategy will continue to support prices in these areas. Bitcoin has surged to record highs in the aftermath of the Trump victory.

In terms of climate change, the next four years of the Trump administration is likely to see something of an unwinding or stalling in the US moving towards renewables. While market forces and the extent to which rapid progress is locked in, Trumps agenda will inevitably slow progress along the path towards net zero emissions.

Governments and businesses in Australia and New Zealand will closely watch the policy actions of the Trump administration. Some are clear and will present challenges. It is also clear there are many policy issues yet to materialise in the US, suffice to say the “America first” mantra will dominate the policy agenda and the business sector outside the US needs to be alert to how this will impact their operations.

Stephen Koukoulas will be sharing more economic insights on what Trump’s second term could mean for the Australian and wider economy.

Will it impact the Australian Federal election and just how can Australian CFOs best plan and prepare for the next 5 years? Be an informed CFO and join the 2025 Melbourne CFO Symposium, Thursday 20th February 2025 at the Langham Southbank >

CFOs & Finance leaders register today: www.VICCFOSymposium.com