Donald Trump’s dramatic move to impose sweeping new tariffs has reignited fears of a global recession, sending financial markets into turmoil and casting a cloud of uncertainty over economies worldwide — including Australia’s.
The former U.S. President’s proposed 10 per cent baseline tariff on imports, and much higher rates for certain countries, have triggered immediate responses from global powers. China’s retaliatory 34 per cent tariff on U.S. imports has only deepened the instability. While Australia has largely avoided direct impact — only around 4 per cent of its exports go to the U.S. — it cannot escape the wider economic consequences.
Treasurer Jim Chalmers has acknowledged the risks. While Australia’s Pre-Election Fiscal Outlook (PEFO) still forecasts GDP growth of 4.25 per cent in 2024–25, it’s based on data from before the full scope of Trump’s tariffs became clear. Chalmers conceded this week that “we still do expect Australian GDP to take a hit,” even if that impact is expected to be “more manageable.”
Markets have already reacted. The ASX plunged nearly 4 per cent in early trading on Monday. Economists now predict the Reserve Bank will cut interest rates, possibly by as much as 50 basis points, to respond to the slowdown. Some are forecasting up to three rate cuts this year — a dramatic shift in monetary policy direction sparked by global conditions rather than domestic mismanagement.
There’s no doubt Australia is in a better position than many — falling inflation, modest wage growth, and a diversified export base have helped. But uncertainty is growing. The reliance on China, Australia’s largest trading partner, adds a layer of vulnerability. If Chinese economic growth stalls or trade patterns shift, Australia could face more serious challenges.
Domestically, the timing couldn’t be more delicate. With a federal election looming, political parties are already trading blows over who is best equipped to handle external economic shocks. The Albanese government insists it has put the country on stable footing, but critics argue that current levels of spending and debt leave little room to manoeuvre.
Regardless of political leanings, one thing is clear: Australia will need to stay nimble. The fallout from Trump’s trade policies is far from over, and global markets are jittery. For now, Australia has avoided the worst — but the true test may still lie ahead.
