What the US Election Means for Australia’s Economy

With the US election now less than a month away, and Vice President Kamala Harris and former President Donald Trump neck and neck in the polls, it is important to consider the potential implications of either candidate’s victory for both the US and Australia.

This edition of Nexus APAC Insights examines the impacts of both a second Trump administration and a first Harris administration on Australia’s economy.

The US-Australia Economic Relationship

The US and Australia have long maintained a close trade relationship underpinned by the Australia-US Free Trade Agreement (AUSFTA), which came into effect in 2005. The US is a significant trade partner for Australia, with the value of two-way trade reaching US $77 billion in 2022.

The US is Australia’s fifth largest export market, accounting for 4.6 percent of total exports in 2022. Top goods exports include meat, precious metals and stones, and optical and medical instruments. The US receives over 25 percent of Australia’s high technology exports, and an even higher share for particular products like pharmaceuticals (47 percent) and machine tools (64 percent). Notably, the US is Australia’s largest services export market, accounting for over 12 percent of Australia’s total services trade, in particular in professional, financial and technical services.

The US is also Australia’s second largest importing partner behind China, account for 10.7 percent of total imports in 2022. Australia’s top imports from the US include machinery, vehicles, electronics and pharmaceutical products.

Impacts of a Harris Presidency

The absence of significant policy announcements from the Harris campaign suggests that a Harris administration would likely maintain the general economic direction set by the Biden administration.

Major economic policies include:

• Raising the corporate tax rate to 28 percent, and the capital gains tax rate to 28 percent for people earning more than US $1 million.
• Extending tax cuts for people earning less than US $400,000.
• Price controls on essential goods such as groceries.
• Taxing the unrealised gains of people with net assets above US $100 million.
• Maintaining tariffs on foreign goods put in place during Mr Trump’s first term, including tariffs on Chinese goods which were expanded by President Biden in September 2024.
• Greater economic engagement in the Indo-Pacific region, including through the Indo-Pacific Economic Framework.

Although the continuity of a Harris administration is anticipated to ensure market stability, it is unlikely that the US will shift away from its recent protectionist stance or its economic competition with China. According to a 2017 report by the Productivity Commission, even if Australia is excluded from the US tariff regime, the disruption to, and reorganisation of global trade associated with protectionist policies can have indirect effects on Australia’s economy.

Australia has already begun to respond to this changing economic landscape. The Future Made in Australia plan, the centrepiece of this year’s Federal Budget, diverts significant national funds into boosting the growth of Australia’s renewable energy sector and supporting Australian businesses. This is reflective of the US Inflation Reduction Act and CHIPS Act which are aimed at EV and semiconductor manufacturing.

In light of continued economic protectionism by the US, Australia continues to explore options for forging stronger trade relationships with its Indo-Pacific neighbours. The launch of the $2 billion Southeast Asia Investment Financing Facility is a recent example.

Impacts of a Trump Presidency

The economic policy of a second Trump administration would likely focus on increased tariffs, tax cuts and deregulation.

Major economic policies include:

• Permanently reducing the top individual income tax rate to 37 percent.
• Reducing the corporate tax rate to 20 percent, or 15 percent for domestic companies involved in manufacturing.
• 10-20 percent tariff on all imports and a 50-60 percent tariff on all imports from China.
• Deregulation of the energy and financial sectors.

While Malcolm Turnbull managed to negotiate an exemption to US tariffs imposed on Australian steel and aluminium during the first Trump administration, the tariffs of a second Trump administration may apply to all Australian exports to the US. In regard to direct economic impacts, a 10-20 percent tariff is likely to contract bilateral trade through decreasing the competitiveness of Australian businesses, reducing profits, and resulting in reduced export volume to the US.

A 10-20 percent tariff on all imported goods is expected to provoke an economic reaction from US trading partners, which may result in further disruption of global trade and market instability. Reduced demand for imports could also result in a stronger US dollar due to less spending of US dollars in global markets. As many Australian goods are traded in US dollars, a stronger US dollar could  put major Australia exports such as copper, gas, coal and wheat at a disadvantage.

High US tariffs imposed on China are also likely to have considerable economic implications for Australia. Trade accounts for around 25 percent of Australia’s GDP, and China remains Australia’s most important trading partner. A May 2024 report from the OECD estimated that a global trade war may result in a 1.2 percent reduction in Australia’s GDP.

In this way, a second Trump administration would put additional pressure on Australia’s balance between economic interests tied to the Chinese market and longstanding strategic, political and economic ties to the US.

The Nexus team will continue to track the implications of a Harris or Trump administration for Australia.

Stay tuned on the Nexus APAC Insights page for more political updates.