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Trump trade policy to shape global markets

AAP logoAAP 10/11/2016 Lilly Vitorovich

US President-elect Donald Trump's trade policies, particularly with China, will be critical for the global economy, including major exporter Australia, according to economists.

HSBC Australia chief economist Paul Bloxham says the surprise election of Mr Trump increases economic uncertainty and creates a risk of increased protectionism that would weaken global trade.

"For Australia, the main negative impact seems likely to be the effect that reduced global trade could have on Asian growth, given Asia's high trade reliance," Mr Bloxham said.

However, weaker Asian exports could mean more policy support for infrastructure investment, particularly in China, which would support demand for commodities.

"Continued strengthening of Australia's economic ties to China should be a priority as it would help support local growth even in the face of rising global trade protectionism," Mr Bloxham said in a research report.

During the hotly fought US presidential election campaign, Mr Trump vowed to increase trade protection, including tariffs of 45 per cent on Chinese goods and 35 per cent on Mexican goods.

Mr Trump and Democrats presidential candidate Hillary Clinton both opposed the Trans-Pacific Partnership (TPP) - a 12 nation regional free trade agreement that includes Australia, Canada, Japan and the US.

University of NSW Business School economics fellow Tim Harcourt said the rhetoric has been isolationist and protectionist but the reality may be different, given Mr Trump needs backing from Congress.

"Most of the market concern was instability and so on but that seems to have died down a bit now after the generous victory speech," he said.

"The main issue will be how he treats China, Japan and Korea. I suspect the Chinese that are very pragmatic and they know the difference between rhetoric, sabre rattling and reality."

If it's more than rhetoric, Australia could position itself as a "stable, open partner" in the region.

"The other consideration is that most trade policy in the US is determined by Congress, so its really the reaction of Congress to international trade as much as what the president may want," he said.

The Republican Party has retained control of both houses of Congress but many Republicans don't like or agree with Mr Trump's policies.

Mr Trump is unlikely to start a direct trade fight with Australia as he doesn't see us a risk, but if he causes problems with China it could have a knock-on affect on the local economy.

"We'd be collateral damage," Mr Harcourt said.

British asset manager Standard Life Investments believes Mr Trump's trade policy will be "pivotal" for the global economy.

Mr Trump's pledge to increase trade protection and cut immigration would simultaneously weaken economic growth and increase inflationary pressures.

"It is plausible that the new administration will not ramp up tariffs on Mexican and Chinese imports, content instead to bury the prospect of new trade agreements and make more use of enforcement clauses in existing agreements," Standard Life said in a research report.

Mr Trump will be sworn in as the 45th President of the US on January 20, and the first 100 days will be closely watched by the world.

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