Potential Effects of Trump's Second Term on Australia's Economy and Housing Market

Introduction

With Donald Trump’s recent victory in the US elections, Australia may experience a ripple effect through its economy and property markets. As one of Australia's largest trading partners, the United States’ policies can impact Australia directly. Here are five key themes to watch in the coming months:

Trade Tensions and Tariffs: Australia’s Position in a Global Trade War

A central aspect of Trump’s economic agenda has been his stance on imposing tariffs, particularly on China, which could create a complicated scenario for Australia. Australia relies on China as its top export destination, with about 35% of its exports directed there, including resources vital to the Australian economy. If Trump’s tariffs on Chinese imports reignite, Australia may face reduced demand for its exports, potentially destabilizing sectors like mining and agriculture that depend on Chinese trade.

Moreover, a global trade war could affect shipping costs and increase inflation volatility worldwide. This shift could heighten costs for Australian businesses, particularly those reliant on international goods. Australian policymakers are keeping a close watch on the potential for redirected production costs to disrupt domestic pricing structures and inflation trends, which would have broad-reaching implications for consumer spending and economic growth.

Inflationary Pressures and Interest Rate Hikes

Trump’s tax and interest rate policies in the US could have a ripple effect on inflation globally, pressuring the Reserve Bank of Australia (RBA) to reconsider its interest rate strategies. Trump’s tax cuts and policies that may spur economic growth in the US could lead to an overheating economy, prompting global inflation, which might force central banks worldwide, including the RBA, to increase interest rates.

Australia’s Treasury Secretary recently cautioned that trade restrictions and inflation volatility could disrupt Australia’s economic balance, making it challenging for policymakers to stabilize interest rates amidst rising inflation. Higher interest rates would directly impact Australian homeowners, who are already grappling with elevated mortgage rates, potentially placing additional strain on household budgets and dampening property demand.

Currency Fluctuations: Implications for Imports, Exports, and Investments

A Trump presidency may lead to considerable volatility in the Australian dollar (AUD) against the US dollar (USD), a scenario closely tied to interest rates, inflationary trends, and trade relations. Historically, Trump’s policies—particularly his stance on tariffs and the “America First” agenda—have driven up the USD’s value as markets react to heightened global uncertainty. This kind of appreciation could place downward pressure on the AUD, making Australian exports more competitive but also increasing the cost of imports, which could contribute to domestic inflation.

A depreciated AUD might initially support export sectors like mining and agriculture by making Australian products cheaper in overseas markets. However, the same depreciation can make it more costly for Australia to import essential goods, impacting industries reliant on imported materials and technologies, especially in manufacturing and construction. For the property market, a weakened AUD could drive foreign investment in Australian real estate, especially from the US, where investors may view Australian assets as a relatively affordable and stable opportunity amid global fluctuations.

Moreover, if Trump’s policies lead to a US-led rise in global interest rates, the AUD could face sustained downward pressure, affecting the cost of overseas financing for Australian companies. For Australian consumers and investors, currency fluctuations could raise prices for imported goods and services, adding further inflationary pressure in the domestic market, especially on household goods and travel expenses, while also influencing investment decisions for those exposed to foreign markets. 

Impacts on Property Markets and Housing Affordability

For the property sector, heightened inflation and interest rates due to the potential US-China trade war present a significant concern. Regions dependent on the resources sector, like Queensland and Western Australia, might face challenges if demand from China slows, leading to higher unemployment rates and a potential decrease in housing demand.

Additionally, rising construction costs due to inflation and supply chain disruptions may limit new housing developments, exacerbating Australia’s current housing shortage. This scenario might lead to affordability issues for first-time buyers, who are already facing record-high property prices. Trump’s second term policies may ultimately influence RBA’s stance, pushing it towards rate hikes to control inflation, further limiting purchasing power among potential homeowners and investors alike.

Labor Market and Migration Concerns

Another aspect likely to see repercussions is Australia’s labor market, particularly within skilled construction trades essential for supporting housing developments. With global supply chain challenges and skilled labor shortages already impacting Australia, stricter migration policies in the US could further strain Australia’s labor force if these restrictions lead to policy changes for migrants seeking work in both countries.

The recent decline in net overseas migration is expected to halve by 2026, creating a bottleneck in sectors that depend on foreign labor. This could lead to prolonged project timelines, impacting the housing supply in cities already experiencing demand pressures. Oxford Economics Australia has projected that housing supply could see some recovery by the end of the decade, but short-term shortages may lead to increased rental costs, further affecting housing affordability.

Conclusion: Navigating a Shifting Economic Landscape

Australia's economy and housing markets are intricately linked to global economic policies, particularly those of major trading partners like the United States. With Donald Trump back in office, potential shifts in trade, inflation, and migration could challenge Australia’s policymakers, business owners, and homeowners. For investors and homebuyers, understanding these economic indicators and preparing for market adjustments will be key to navigating this evolving landscape.