Australia will be resilient to global trade upheaval, Citi says

AUSTRALIA is expected to remain resilient to global trade fractures, according to economists at Citigroup, even as US President Donald Trump unleashes tariffs on Canada, Mexico and China.

Australia’s deep political ties with Washington and its direct exports to the US only accounting for 3 per cent of total shipments in 2023 are among the reasons Trump 2.0 will not be a “calamity”, Citi’s Australian economists Josh Williamson and Faraz Syed said in a research note on Monday (Feb 3).

“While a hit to global trade flows could cause incomes and GDP growth to decline marginally, natural shock absorbers such as the exchange rate and strong economies ties with the rest of the world will likely imply minimal economic impact for Australia,” they said.

“We also consider that a trade war could lead to a decrease in goods prices domestically if exporters in China look for alternative markets to the US.”

While Australia is a small open economy that’s geared to trade, it’s largely a price taker with the rest of the world. As a result, Citi does not expect it to impose its own tariffs because of the damage it would do to local consumers.

Around a quarter of Australian imports are from China, with other parts of Asia and the US also featuring heavily. Citi also said its results are not too dissimilar to the Reserve Bank of Australia’s modelling on a large three to four percentage point decline in Chinese growth from US tariffs. BLOOMBERG