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What Trump means for Australian economy

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Within 48 hours of his inauguration, the 45th President of the United States, Donald Trump, has introduced a swathe of executive orders that look set to rip up the old rule book and with it, the legacy of the Obama administration.

This includes taking steps to dismantle the Affordable Care Act and the reversal of plans to reduce mortgage insurance premiums on federally insured home loans.

Despite these sweeping changes, it is confirmation of the US's withdrawal from the Trans-Pacific Partnership (TPP) that has garnered most interest here in Australia. To recap, the TPP was poised to become the largest trade agreement in the world, comprising 12 APAC countries, including us.

In an interview yesterday with the ABC, Trade Minister Steve Ciobo was adamant that this was really bad news for Australian exporters, and that he, on behalf of the Turnbull government, would do all he could to salvage the deal with the other partners.

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Ciobo's earnestness is perhaps a little misplaced.

There is no question that Australian businesses will lose out on trade with the other signatories of TPP, but the scale of the loss should not be exaggerated. According to a World Bank report published in 2016, Australia's economy was projected to get a boost of just 0.7% by 2030 as a result of signing up to TPP.

In addition, despite the president's protectionist posturing, let's not lose sight of the fact that we already have a free trade pact with the US (AUSFTA), not to mention Japan and New Zealand. These bilateral trade cordials can actually prove more advantageous than colossal multilateral agreements like TPP, where there is risk that in trying to please everyone, they please no-one. In short, with so many conflicting interests, such pacts are cumbersome and often watered down.

The TPP announcement made by President Trump therefore needs to be approached as an opportunity: to dial up the prospect of bilateral pacts with the likes of Indonesia and India, for example.

If a regional pact is the Turnbull government's preferred route to opening up markets, China's Regional Comprehensive Economic Partnership (RCEP) could present an attractive alternative to TPP.

With a New York Times editorial only yesterday saying that it feared a 'chaos presidency', is it perhaps high time we more enthusiastically embraced east over west?

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Talking of China, there is another issue that requires careful observation.

OFX is in the business of international payments and beyond TPP, there are more immediate and substantive issues relating to the Aussie dollar that could impact Australian exporters. Against market predictions, the US dollar strengthened when POTUS45 won the election in November.

President Trump is now adamant that the Greenback is too strong and in the process, "killing" American companies, which have to compete against what he believes to be an artificially low Chinese currency.

If this trend continues, this could push the Australian dollar up - good news for importers and wage earners, bad news for Australian small businesses selling their wares overseas.

There's even talk that the continued volatility will mean a surge in the property market, as people look to bricks and mortar for a safe investment bet. As if property prices in Australia were not high enough.

Will Shepherd is head of treasury at OFX, formerly Ozforex, an ASX listed global company that manages foreign exchange transfers at competitive rates for individuals and businesses.

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Jessica Hu
January 25, 2017 11.49pm

Guess this is one of the main reason for the DFAT to seek general public submissions to the Australian Foreign Policy White Paper ...
and to guide the Australian international engagement over the next 5 to 10 years.
http://dfat.gov.au/whitepaper
...
China is so far Australia's largest export market. China-US trade war, if there is, it might be the single biggest economic threat to Australia.

Agree?

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