Much has been made of his administration since Donald Trump’s inauguration as U.S. President. While we have to wait little bit longer to see his effects on the economy, his first few months have given pretty decent signal how everything will turn out in the coming months. One of the major theme of his presidential campaign was his protectionist ideology and recently Queensland Investment Corporation chief economist Matthew Peter outlined a nightmare scenario where he predicted that Australian economy might face tough time ahead.
Talking about Trump’s protectionist economic policies’ effect on Australian economy, he said that unemployment rate would eventually rise to 7 percent while Australian Dollar might suffer heavy consequences as it might fall to 60 cent.
He said, “We’ve done a fair bit of modelling on this, but we don’t know exactly what he’s going to do.”
“Anything around that sort of measure, which was retaliated by China and Mexico, would be pretty damaging.”
“In our simulation, we find that would reduce growth in the US over a four-year period by two percentage points.”
“For the economy, that’s pretty bad stuff.”
“Inflation would probably go through the roof because of the higher tariffs and … they would probably have to raise interest rates, which would raise the US dollar and worsen the situation.”
“Australia is not immune, obviously, because even though it doesn’t have very strong trade links anymore in terms of merchandise trade with the US – it’s dominated by China – what we find there is we get about a 1 per cent fall in GDP over four years.”
“That’s not as bad as China and the US because the RBA is forced to cut rates to half a per cent, the dollar falls to about 60¢ and they’re strong pushing effects for the Australian economy and that enables us to see through some of the worst parts of the trade shock.”
“But, nonetheless, you’d expect the unemployment rate to hit something like 7 per cent in that type of scenario, so it would be pretty bad news for us.”
If such scenario does come to fruition, he predicts that the Australian economy would lose potential investors from the country. He commented, “We’d move from this safe-haven type economy to, dare I say it, a banana republic.”
“So that’s the horror story, but I don’t think that’s going to happen. There’s not going to be that type of shock.”
Despite these major concerns, he predicts that such scenario is little bit far-fetched considering how Trump has fared in his first few months of presidential reign. Whatever happens though, it’s likely that most of the countries will be somewhat affected due to Donald Trump’s economic policies.
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