Trump’s tariffs on Mexico and Canada are a lesson to the rest of the world: Don’t count on the U.S. as a friend.
Welcome to Talking Business, a podcast produced in Melbourne Australia. The podcast is available on the Acast site, my own website, the Apple Podcast store or wherever you go to get your podcasts. Or you can get it at the Business Acumen website at www.businessacumen.biz
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I am Leon Gettler. My job is to review and monitor the week’s news in business, finance and economics. I bring it all to you, every week.
This is episode number 1 in our series for 2025 and today’s date is Friday February 7.
First, I’ll be talking to I’ll be talking to the US based CEO of Bionomics, Spyros Papapetropoulos. Bionomics is distinct in 2 main ways: it specializes in mental health disease drugs especially anxiety, PTSD and dementia. Also it has about the most blue chip ownership you could get for a small cap Aussie biotech.
And I’ll be talking to AMP Capital chief economist Shane Oliver about inflation, interest rates and what global economic trends we can expect in 2025.
But first let’s talk to Spyros Papapetropoulos.
So what’s happening in the news?
And it’s begun. Less than two weeks after Trump became US president, the White House has announced tariffs on Canada, Mexico and China. The Trump administration has laid the groundwork with what could become an intercontinental trade war. On Tuesday, the president announced he would impose a 25% levy on imports from Canada and Mexico, a 10% tariff on energy products from Canada, and an additional 10% tariff on China. On his Truth Social platform, Trump said tariffs will be imposed under emergency economic authority never before used for tariffs “because of the major threat of illegal aliens and deadly drugs killing our Citizens, including fentanyl,” Don’t ask if it make sense. But this is US isolationism again. And if those countries retaliate, which they said, they will, Trump has made sure the tariffs also include a retaliation clause that will increase penalties if the trading partners strike back at the U.S. with tariffs. These tariffs are historically important. They mark the first time the International Economic Emergency Powers Act has been used to impose tariffs. The last time the law was used was when President Richard Nixon used a precursor to the law to impose 10% tariffs on all imports in 1971. This act gives Trump broad powers and makes it difficult for Congress to overturn the decision, Legal challenges are likely, particularly on whether the measures are genuinely linked to fentanyl trafficking. But then the next day, in a last minute move, Donald Trump agreed to pause sweeping tariffs on Mexico and Canada for one month after Mexican President Claudia Sheinbaum committed to sending 10,000 National Guard troops to the US-Mexico border and Canadian Prime Minister Justin Trudeau pledged to send nearly 10,000 frontline personnel to ensure “24/7 eyes” on the US-Canadian border. But we are yet to see what happens in a month’s time. However, the trade war has definitely begun after Chins retaliated with a 15% tax on certain types of coal and liquefied natural gas from the US and a 10% tariff on US crude oil, agricultural machinery, large-displacement cars and pickup trucks. The measures take effect on February 10. Meanwhile Trump has hinted the European Union (EU) could be next to face tariffs “pretty soon”. “They don’t take our cars, they don’t take our farm products, they take almost nothing and we take everything from them. Millions of cars, tremendous amounts of food and farm products,” he told journalists. The US President added he enjoyed good relations with British Prime Minister Sir Keir Starmer, and that trade issues with the UK could be worked out. Trump’s tariffs when they come into effect are significant because economists say they would reignite inflation which Trump campaigned to get rid of. And worse still, they deal a significant blow to the US economy. According to Ryan Sweet, chief U.S. economist for Oxford Economics, the Federal Reserve’s preferred annual inflation measure was at 2.8% in December. This would rise to 3% by the end of the year. Sweet had expected the reading to fall to 2.2%, close to the Fed’s 2% goal, without the tariffs. And he says the tariffs would also would lower economic growth by a hefty 1.2 percentage points this year, from 2.6% to 1.4%. Why is this? Because higher costs would force consumers to reduce their overall spending. And likely retaliatory tariffs from the countries affected would dampen U.S. exports. And that would hobble American manufacturers and business.
Trump’s tariffs have sent markets into a spin and the Australian dollar is likely to fall further. Concerns about a global trade war sent the Aussie to a five-year low on Monday. IG market analyst Tony Sycamore said unless the dollar was able to regain territory in the coming week it was vulnerable to testing. It could fall below the psychologically significant US60c level, before a move lower towards US57c. The weaker dollar is bad for travellers, people buying overseas products. If Australia is caught in the crossfire of a global trade war, it will cripple any hopes of an economic recovery.
As expected, Trade Minister Don Farrell is seeking talks with his US counterpart Howard Lutnick “as soon as is humanly possible” after the announcement of the tariffs, to make sure they don’t affect Australia. Still, he has to wait until Congress confirms Lutnick’s appointment. And yes, if the tariffs hurt the economy of China, Australia’s trading partner, they are sure to have an impact here because it means China will buy less from Australia.
And he better do it too because dozens of major Australian companies will face higher costs and lower sales after the outbreak of a debilitating trade war between the United States and its closest partners. Exporters are now scrambling to evaluate the hit to their businesses from Donald Trump’s sweeping new tariffs. Who exactly will be hit? Well, billions of dollars in pharmaceutical and manufacturing exports could be caught up if the US president expands trade restrictions to Australia, with executives urging the Albanese government to seek exemptions in their discussions with American officials.
Australian Treasurer Jim Chalmers says the government actually did modelling on what would happen if tariffs were imposed on Australia by the US before Donald Trump was re-elected. It found Australia would not be immune to trade tensions but he said “we can withstand it”. When asked whether the government had done any modelling on if tariffs are imposed on Australia by the US, Chalmers said the modelling found Australia was a “very trade-exposed economy”. “It means that we’re not immune when there are escalating trade tensions, but we are pretty well-placed to navigate them,” Chalmers said on ABC’s RN Breakfast. “There are two separate issues here. Tariffs applied directly to our economy is one thing. More broadly, there’s an issue around escalating trade tensions. We won’t be immune from that, but we’re pretty confident that we can withstand it.” He said he would not get into hypotheticals on retaliation.
Meanwhile, US Treasury Secretary Scott Bessent has given representatives of the so-called Department of Government Efficiency access to the federal payment system late on Friday, handing Elon Musk and the team he is leading a powerful tool to monitor and potentially limit government spending. The new authority follows a standoff this week with a top Treasury official who had resisted allowing Mr. Musk’s lieutenants into the department’s payment system, which sends out money on behalf of the entire federal government. The official, a career civil servant named David Lebryk, was put on leave. And what do you know, he then suddenly retired on Friday after the dispute. The system could give the Trump administration another mechanism to attempt to unilaterally restrict disbursement of money approved for specific purposes by Congress, a push that has faced legal roadblocks. Musk has been given wide latitude by President Trump to find ways to slash government spending. Musk has recently fixated on Treasury’s payment processes, criticizing the department in a social media post on Saturday for not rejecting more payments as fraudulent or improper. While their access was approved, the Musk representatives have yet to gain operational capabilities and no government payments have been blocked, the people said. The Department of Government Efficiency, or DOGE, is not a government department, but a team within the administration. It was put together at Mr. Trump’s direction by Mr. Musk to fan out across federal agencies seeking ways to cut spending, reduce the size of the federal work force and bring more efficiency to the bureaucracy. Most of those working on the initiative were recruited by Mr. Musk and his aides. Similar DOGE teams have begun demanding access to data and systems at other federal agencies, but none of those agencies control the flow of money in the way the Treasury Department does.
And in the lead up the election, access to Opposition Leader Peter Dutton has doubled in price to $10,000-plus over the past year as executives scramble to build relationships with the prime ministerial aspirant and his closest lieutenants. Business people are now paying up to $15,000 to be seated next to Mr Dutton at corporate fundraisers. They obviously expect he’s going to win, or at least create a minority government. A boardroom lunch or dinner with Prime Minister Anthony Albanese costs much lower – between $6000 and $10,000!
In another piece of news, state and territory governments around Australia have been warned by the big ratings agency S&P Global that that their credit ratings could be downgraded. States and territories began spending more during the pandemic but S&P Global says the spending is continuing after the pandemic. “The pandemic is over, but pandemic-size budgets aren’t,” S&P analyst Anthony Walker said/ He warned that the consolidated cash deficit – calculated by combining the underlying budget balances of the states and territories – was forecast to hit $64.8bn this financial year. “The relaxed approach to fiscal consolidation is causing us to increasingly question our views that many states have exceptionally strong financial management on a global scale,” he said. In the 2020-21 pandemic-era budgets, which outlined how governments planned to move on from Covid-era lockdowns and restrictions, states forecast the combined deficit to be $42.5bn by 2024-25. That figure, however, S&P has estimated, is now not expected to be achieved until 2028-29. S&P estimates that would push gross debt above $850bn by that time, or close to a trillion dollars. As a result of increased expenditure and expected delays to budget recovery, Mr Walker said state and territory governments risked more rating downgrades after those related to the pandemic. And if that happens, it means all of Australia’s states and territories would have to pay more interest on their debt.
Australia has banned DeepSeek from all government devices and systems over what it says is the security risk the Chinese artificial intelligence (AI) startup poses. DeepSeek stunned the world in January when it unveiled a chatbot which matched the performance level of US rivals. It claimed its version had a much lower training cost. The result: billions of dollars wiped off stock markets internationally, including in Australia, where stocks tied to AI – such as chipmaker Brainchip – fell sharply overnight. The Australian government says its ban is not due to the app’s Chinese origins but because of the “unacceptable risk” it poses to national security. Australia’s move specifically requires any government entities to “prevent the use or installation of DeepSeek products, applications and web services”. If it’s already installed, they have to remove it from any government system or device. That means a wide range of workers will not be able to use the tools in the country, including those working in such varied areas as the Australia Electoral Commission and Bureau of Meteorology. It is less clear whether it means DeepSeek would be banned from public sector computers in different areas of the economy, such as schools. The ban does not extend to devices of private citizens.
In news for property investors and owners, property prices remained broadly steady across the country in January, according to new data from CoreLogic. That was largely due to a fall in values in some capital cities. For example, Melbourne saw the biggest drop in value (-0.6%), followed by Canberra (-0.5%) and Sydney (-0.4%). That saw the value of dwellings in regional areas grew 0.4% last month, but fell 0.2% across the combined capital cities. Adelaide recorded the largest jump in values (+0.7%), followed by Darwin (+0.6%), Perth (+0.4%), then Brisbane (+0.3%). Hobart prices were flat. “Underneath that headline figure, we’re seeing a continued slowdown in the capital city markets, while there’s been a lot of regional resilience and values reaching record highs in the combined regional market,” CoreLogic head of research Eliza Owen said. “We’re still seeing values rise in Brisbane, Perth and Adelaide but there’s a clear trend in slowing the pace of growth and overall a gradual transition to a buyers’ market, with fewer sales and stock levels starting 2025 higher than where they were at the beginning of last year,” she said.
And that’s it for this week. And that’s it for this week. And next week, I’ll be talking to Holly Fowler, the founder and CEO of Wable which is a first-of-its-kind social networking and dating app for neurodivergent people
And I’ll be talking to Independent economist Saul Eslake about what to expect in the Australian and global economies in 2025 with the predictably unpredictable Trump.
For the most exclusive access to leading economists and business leaders from around the world, subscribe to Talking Business from my website.
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Looking forward to the next episode of Talking Business.
