See the world through the eyes of an economist.
Tariffs and a new world order
It’s all about the Trump Tariffs and the meltdown in markets they’ve caused this week. Final numbers are yet to be confirmed, but on current estimates, the US now has the highest effective tariff rate since 1904!
The shock that this was actually happening triggered the biggest sell off in the US market since Covid – though it has now bounced back, and then down, and then back.. since then.
The only thing I would note here is that just takes us back to where the US market was in August last year, so it’s possible the market is just blowing off a bit of froth, rather than crashing.
What does it mean for Australia?
The direct impacts of the US tariffs on Australia are likely to be small. Only around 4% of Australia’s exports are to the US, so a 10% tariff won’t hurt too much.
But our major trading partners are facing some pretty stiff tariffs. China is now looking at 104%!!!
That might start to hurt our exports.
But petrol will be cheaper
But as the world downgrades its growth outlook for the coming year, oil prices are coming off in a big way.
And where the price of brent-crude goes, so do bowser prices:
And rate cuts!
And with the global growth outlook falling, markets are now pricing in four rate cuts by December. Some economists say we’ll get an oversized 50bips in May! This is the chart of current market pricing.
If that happens, we’ll see a substantial fall in household interest payments, which will probably be very welcome.
But uncertainty reigns
But at the end of the day, uncertainty is the real killer here. Nobody really knows how this is going to play out. Business confidence and consumer confidence are both tanking.
The media is adjusting. Are you worried about the cost-of-living? Have you tried buying nothing but turnips?
That’s how to survive the coming economic meltdown. Cook smarter!
And that’s how the world looked through the eyes of an economist this week.
DB.