Trump vs Harris: what it means for the Australian economy

The outcome of the U.S. election presents two standout risks for the Australian economy, with potential to undermine a broadly favourable global economic backdrop, says Westpac’s Head of International Economics, Elliot Clarke. 

While it’s clear that Republican candidate Donald Trump and his Democrat opponent Kamala Harris have starkly different visions for the country’s future, ultimately the checks and balances built into the U.S. political system mean neither are likely to be able to deliver fully on their campaign policies, Clarke says.

As a result, Clarke sees the path of U.S. growth being similar whoever wins. Even so, their different policy priorities can still have an impact. 
 

Trade is the first area where Clarke says Australia could be vulnerable.  

Trump has set himself apart from Harris on trade policy with tough talk on China, including the threat of punitive tariffs. That could have knock-on effects for Australia’s relationship with our biggest trading partner.   

The value of two-way trade between Australia and China rose to $327 billion in 2023, according to government data, underlining its importance as a key customer for our iron ore, coal, and other key exports such as tourism and education. 

“It is definitely the case that initially under a Trump administration we would see a harder line taken and more pessimism around the implications for China,” Clarke says in a podcast interview. 

In that event, Clarke would expect China to further shift the focus of its exports to other markets, particularly in its Asian backyard, while showing caution towards countries which are seen as allied to the US, including Australia. 

“It may see China look elsewhere for its supply of commodities rather than Australia and potentially we might lose out in terms of tourism and education flows to other parts of Asia as well,” Clarke says. 

However, while there may be a period of turbulence, Clarke also notes that Trump’s love of a deal could lead to a compromise being struck with China over time which might ultimately work to put global trade on a sounder footing. 

Trade policy under a Harris administration is also not without its risks, Clarke adds.

“She might try and work more with Europe to put pressure on China and other parts of Asia as well.” If Australia is also seen as part of that alliance with the U.S., then it could see us dealt with on less favourable terms by China.

Rates Risk 

The second risk Clarke sees for Australia is that the new administration moves to boost investment and spending in the U.S., stoking inflationary pressures and keeping interest rates higher for longer.

“While Harris wants to push forward with investment, it’s not necessarily happening broadly across the economy, so there is potential there for capacity constraints to remain in place,” Clarke says. That might be exacerbated if domestic suppliers are prioritised over cheaper overseas competitors, further adding to inflation.

“Potentially we could see higher-for-longer interest rates at the short end (Fed policy rates) but also then permeating through to the longer end and 10-year bond yields which will play through to Australian financial conditions as well.”

Such a scenario could emerge under Harris or Trump, Clarke says, although Harris’ focus on providing more support to households and domestic industry makes it slightly more of a risk under her administration. 

These risks to Australia must be seen within the context of broadly more favourable global economic conditions, Clarke says. 

Most central banks, including the Fed, are now in easing mode, even as growth rates and employment remain robust.   

“That’s encouraging from a global growth perspective and in terms of demand for commodities, but also for the free flow of people – which supports demand for tourism and education and other exports that Australia materially benefits from,” Clarke says. 

The Fed’s recent easing has also had the beneficial side-effect of boosting the Australian dollar, helping to lift it close to 70 cents per U.S. dollar - its strongest levels in nearly two years. 

“That’s quite favourable in thinking about our own inflation backdrop – you start to take out some of those upside risks to inflation from a low currency,” Clarke says.

It also backs the view of Westpac economists that the RBA can start lowering the cash rate from February next year, with the team forecasting a full percentage point worth of cuts by the end of 2025.