How the US election will shape the Australian business landscape

The US is a major source of direct foreign investment for Australia and the largest destination economy for Australian investment . The two nations have had a free trade agreement for two decades and share a close military and strategic alliance.

“What happens in the US only matters more with every year, particularly in this era of strategic competition,” says Mondschein.

"Australians need to pay a lot of attention to the US these days. We’re no longer in an era of unfettered globalisation. We're no longer in an era in which companies can operate without paying attention to nationality or jurisdiction.” - Jared Mondschein, United States Studies Centre director of research

US tariffs on China

US presidential candidates Donald Trump and Kamala Harris have starkly different backgrounds and outlooks, but Mondschein says the difference in policies between the two are not as great as they might initially appear. 

Regardless of who wins the presidential race on the first Tuesday in November, he believes the US will maintain tariffs on China.

Mondschein says, according to US Trade Representative (USTR) statements, Trump implemented sweeping tariffs on over US$300 billion of Chinese-made products when he was in office². In May, Biden briefed media  that: “First, while imposition of tariffs under section 301 of the Trade Act (section 301 tariffs) has been effective in encouraging China to take positive steps in addressing the issues identified in the section 301 investigation, such as certain revisions in its foreign investment and administrative licensing laws, China’s actions do not represent a systematic and sustained response to the issues raised in the section 301 investigation.”

While Trump and Harris have clashed over tariffs on the campaign trail — with Harris claiming Trump’s proposed tariffs on all imports would increase the cost of living — Mondschein says Chinese tariffs will remain in place.

The tariffs come against a backdrop where the US Studies Centre considers nations are increasingly using economic policies to further their strategic interests — and the US is no exception⁴. For instance, Biden’s Inflation Reduction Act (IRA) of 2022 aims to support US clean energy technologies, but is also about enhancing competition with China and ensuring business opportunities from decarbonisation remain in the US, according to the Centre for Strategic and International Studies⁵.

Mondschein’s view is that in such an environment, there will be ever-increasing US scrutiny of Australian economic ties with China. If Australia wants to maintain access to the US —which recorded the highest GDP growth over the last four quarters according to the OECD⁶ — and benefit from the IRA, it will have to consider how closely it engages with China.

“I don't think sending iron ore to China is somehow going against the US national interest,” he says. “But I think Chinese economic ties in future industries — including hydrogen, EVs and battery technology — Chinese investment and Chinese economic ties in more sensitive industries will come under far more scrutiny.”

Mondschein pointed to the fact that the tariffs Biden increased on Chinese imports included those for electric vehicles, solar cells, EV batteries, critical minerals, steel and aluminium.⁷

A disputed result and FX

“In the absence of a landslide victory on election night, we expect the calling of the election outcome to be delayed,” the CommBank Global Economics and Markets Research team says in its October update ‘US Election guide: Delays, disputes and death?’. “Currency volatility is likely to increase. A disputed election is a high risk in our view.”  A disputed election would support the USD (except possibly against the JPY) and currency volatility.

“Currency volatility is likely to increase. A disputed election is a high risk in our view.” - CommBank Global Economics and Markets Research team

While there are many influences on currencies and there is difficulty in isolating the impact of an election, the team drew some confident conclusions to consider:

1. First, currencies can trade in a wide range of 10% or more in the few months after the election; and
2. Second, the initial move in currencies immediately after the election can be reversed in the following months.

The CommBank Global Economics and Markets Research team noted that if the 2024 election were to be disputed by the loser, the 2000 election stands as a better guide for what may happen in coming months. In the days after the 2000 election, one month implied volatility for AUD/USD and NZD/USD fell moderately by 2.8pp and 1.6pp, and these decreases occurred despite the election being inconclusive for another month. “By contrast, in 2016 implied volatility initially spiked for about one week before easing significantly in the following months.”

In the team’s view, there is a risk that implied volatility lifts because President Trump has indicated he may challenge the vote if he loses. “Further, there is a high risk that votes are contested in more than one state, raising uncertainty who will become president and how long it takes for the election to be resolved. In the 2000 election, uncertainty was constrained to the outcome in Florida.”

Geopolitical considerations for Australian businesses

Mondschein expects geopolitics will continue to be important to Australian businesses after the US election, regardless of the results, and that leaders need to stay abreast of developments.

Leaders of businesses that invest offshore, import or export will need to have contingency plans in place. Unrest, such as that caused by a war, won’t just last for a few days or weeks, but possibly for years, so leaders need to consider how their supply chains will be affected Mondschein says, with China as the most important geopolitical consideration for Australian business leaders.

“You have to look at all of your economic ties with China,” he says, noting in 2023, China bought $219 billion of Australian exports, worth 32.5 percent of Australia's total exports to the world . “Corporates here need to be sensitive to the supply chain implications of a supply chain without China. Are they ready to diversify? Where are their sensitivities?”