Photo: Gage Skidmore, CC BY-SA 3.0, via Wikimedia Commons
Australians were on the edge of their seats Wednesday, as US President Donald Trump's tariffs on steel and aluminum are set to go into effect.
"Trump is going to have a [substantial] impact [on Australia's economy], whether you agree with the politics or not," Tim Lawless, head of research at CoreLogic Asia Pacific, told Bluestone's chief commercial officer Tony MacRae during a panel event in Sydney on Wednesday. "Overall, uncertainty and potential for higher inflation, or inflation being kept higher for longer, which then impacts all interest rates, are going to be the main flow throughs from [the tariffs]."
The price tag for Trump's tariffs is a 25% levy placed on every country that exports steel and aluminum products into the US. Australia's steel and aluminum exports to the US represent just a fraction of the nation's total exports. Still, price hikes on Australian exports could have long-term implications on inflation, interest rates, construction costs and consumer sentiment, all of which impacts the property sector.
Market players were optimistic that Trump would spare Australia from the added fees. But earlier in the week, the US leader said there would be no exemptions or exceptions for any country on steel and aluminum tariffs. The news came as a blow to many Aussies, after Trump reportedly told Australian Prime Minister Anthony Albanese in February that he would consider excluding Australia from the tariffs because of the US annual trade surplus with Australia.
Albanese responded to Trump's decision by saying that Australia will not impose reciprocal tariffs on the US, that doing so would only increase prices in Australia and set off inflation.
"Tariffs and escalating trade tensions are a form of economic self-harm and a recipe for slower growth and higher inflation," Albanese said. "They are paid by consumers."
Either way, the extra tariffs will no doubt have an impact on companies and consumers Down Under, many of whom will be forced to raise prices, while individual shoppers might grow wary of spending or borrowing.
Inflationary pressures might also encourage the Reserve Bank of Australia (RBA) to maintain the official cash rate (OCR) at 4.10% – or consider increasing it. Market participants have been hopeful that the central bank will continue to cut rates throughout the year, after the RBA knocked off 25 basis points in February. But higher rates could push some borrowers out of the housing market, while causing many existing homeowners to wait before they upgrade.
Lawless predicted that the tariffs – and the possibility of global trade wars – will accelerate inflation Stateside, and have a trick-down effect on the rest of the world.
"We're already hearing some chatter about recession in the US on the back of some of these policies," he said. "There's a lot of alienation of long-standing arrangements between different countries and the US. So that is going to have implications for Australia.
"If we started to see imported inflation coming into Australia, that's not great for interest rates either," he said. "Overall, the first thing from Trump and the policies that are coming out of the US is, obviously, a lot of uncertainty. And then more directly, how does it affect our trading partners? Australia … we're not overly exposed to steel tariffs, even though it's 25%. It's a steep market for us.
"It's a bit of a clown show in some ways," Lawless said.
Despite all the economic uncertainty playing out on the world's stage, non-bank lender Bluestone Home Loans is growing.
MacRae told Australian Broker during Wednesday's event that the lender's lodgement volume was higher in the last week of February and first week of March, than any other time during the company's 25-year history.
"A lot of people were holding off, before the rate cuts," MacRae said. "It was only a 0.25% cut. But what it did was give people confidence that the rates are not going to keep rising."
