Welcome to the Fear and Greed Business Interview. I'm Sean Aylmer. Last week's tariff announcement by US President Donald Trump sent global markets reeling, nations scrambled to respond to the widespread tariffs, The risk of US recession increased, and investors watched as trillions of dollars of value was wiped from Wall Street. So what are we supposed to make it all now? And how to investors navigate what's become a very nervous, very fragile environment. Doctor Shane Oliver, chief economist and head of investment Strategy at AMP, joins me this morning. Shane, Welcome back to Fear and Greed.

Welcome to the Fear and Greed Business Interview. I'm Sean Aylmer. Last week's tariff announcement by US President Donald Trump sent global markets reeling, nations scrambled to respond to the widespread tariffs, The risk of US recession increased, and investors watched as trillions of dollars of value was wiped from Wall Street. So what are we supposed to make it all now? And how to investors navigate what's become a very nervous, very fragile environment. Doctor Shane Oliver, chief economist and head of investment Strategy at AMP, joins me this morning. Shane, Welcome back to Fear and Greed.

Thank you, Sean. Great to be here.

Thank you, Sean. Great to be here.

Are we going to see a recession in the US? That seems to be the big question.

Are we going to see a recession in the US? That seems to be the big question.

I certainly think it is the big question. I think it's getting close to fifty to fifty, to be honest with you. Obviously, my assessment regarding that has been changing rapidly over the last few days. These tariffs are very, very onerous. It is the US on the rest of the world. So the US will experience the bulk of this eruption. It affects all imports coming into the US, whereas when you're thinking about Europe or China, it's not affecting all of their exports, which is good for those countries. So the hit to the US I think will at least be one percent of their GDP, potentially more depending on how retaliation goes and other things along the way, whereas the hit to other parts of the world will be substantially less than that. But it is a big grag and obviously the US is the world's biggest economy. If it goes into recession, that's bad news for the global economy and really bad news for us as well.

I certainly think it is the big question. I think it's getting close to fifty to fifty, to be honest with you. Obviously, my assessment regarding that has been changing rapidly over the last few days. These tariffs are very, very onerous. It is the US on the rest of the world. So the US will experience the bulk of this eruption. It affects all imports coming into the US, whereas when you're thinking about Europe or China, it's not affecting all of their exports, which is good for those countries. So the hit to the US I think will at least be one percent of their GDP, potentially more depending on how retaliation goes and other things along the way, whereas the hit to other parts of the world will be substantially less than that. But it is a big grag and obviously the US is the world's biggest economy. If it goes into recession, that's bad news for the global economy and really bad news for us as well.

So how does that transmit to Australia? What do you think the impact will be on Australia as things stand now, and that's important to make that point because it is ever changing?

So how does that transmit to Australia? What do you think the impact will be on Australia as things stand now, and that's important to make that point because it is ever changing?

As things stand now, I think the main impact is perhaps maybe zero point five percent hit to growth, far less than in the US. Obviously there's a lot of debate about Australian exports to the US, but I think that's a bit of a sideshow and the great scheme of things. It's horrible for the industries being affected, including our farmers, but we have about twenty four billion dollars of exports that go to the US annually. Still and our Dominium that already faced twenty five percent tariff. Now they're less than one billion dollars of that. So we're looking at a much bigger set of industries and exports that will now be affected. Pharmaceuticals haven't yet been included, but that's only a matter of time. I think Trump excluded them because I think he's planning to put a bigger tariff on them, maybe twenty five percent. So it looks like Australia was in spared on the calculation that Trump put through justifying his ten percent, which applies to everything except still and our Dominium. The fact that we have a trade deficit with America, they have a surplus with us. We buy more from them than they buy from us. That seemed to be totally irrelevant. Just decided they'll whack a ten percent tariff on so it's really hard for us to get out of that. I can't see what here is to bargain on because we already have a trade deficit with them. But in any case, that's where we just put all that in context. That twenty four billion dollars is less than one percent of our GDP. The exports are not barred from the US. They can still go there, they'll be a little bit less competitive at most. At most you may be looking. At one point two percent hit the economy from that, but I think it's probably less than that. The bigger threats. The bigger threat comes from slower growth resulting in Korea, China, Japan, Europe, and more broadly the US, just resulting in less global trade and less demand for our rural material exports, particularly going to places like China. So that's where the damage will come from. A lot of people seem to think, well, the tariffs will lead to inflation. I think that's goblet begooped. They're ignoring that the tariffs are being imposed at the border in the US. It's a tariff, a tax, basically a tax. This will be a record tax collection tax hike in the US. It's equivalent of about six hundred billion US dollars the amount of tax there they're going to be collecting in the US from those tariffs. So but trouble is Trump is totally wrong. It's not charged on foreigners. It's Americans who will pay it. But that adds to the US inflation, but it doesn't add to our inflation. If anything, we may benefit from more cheaper goods coming to Australia that previously went to the US. But the main risk is the hit to growth, and of course that then in turn adds potentially to the amount by which the RBA will cut interest rates.

As things stand now, I think the main impact is perhaps maybe zero point five percent hit to growth, far less than in the US. Obviously there's a lot of debate about Australian exports to the US, but I think that's a bit of a sideshow and the great scheme of things. It's horrible for the industries being affected, including our farmers, but we have about twenty four billion dollars of exports that go to the US annually. Still and our Dominium that already faced twenty five percent tariff. Now they're less than one billion dollars of that. So we're looking at a much bigger set of industries and exports that will now be affected. Pharmaceuticals haven't yet been included, but that's only a matter of time. I think Trump excluded them because I think he's planning to put a bigger tariff on them, maybe twenty five percent. So it looks like Australia was in spared on the calculation that Trump put through justifying his ten percent, which applies to everything except still and our Dominium. The fact that we have a trade deficit with America, they have a surplus with us. We buy more from them than they buy from us. That seemed to be totally irrelevant. Just decided they'll whack a ten percent tariff on so it's really hard for us to get out of that. I can't see what here is to bargain on because we already have a trade deficit with them. But in any case, that's where we just put all that in context. That twenty four billion dollars is less than one percent of our GDP. The exports are not barred from the US. They can still go there, they'll be a little bit less competitive at most. At most you may be looking. At one point two percent hit the economy from that, but I think it's probably less than that. The bigger threats. The bigger threat comes from slower growth resulting in Korea, China, Japan, Europe, and more broadly the US, just resulting in less global trade and less demand for our rural material exports, particularly going to places like China. So that's where the damage will come from. A lot of people seem to think, well, the tariffs will lead to inflation. I think that's goblet begooped. They're ignoring that the tariffs are being imposed at the border in the US. It's a tariff, a tax, basically a tax. This will be a record tax collection tax hike in the US. It's equivalent of about six hundred billion US dollars the amount of tax there they're going to be collecting in the US from those tariffs. So but trouble is Trump is totally wrong. It's not charged on foreigners. It's Americans who will pay it. But that adds to the US inflation, but it doesn't add to our inflation. If anything, we may benefit from more cheaper goods coming to Australia that previously went to the US. But the main risk is the hit to growth, and of course that then in turn adds potentially to the amount by which the RBA will cut interest rates.

So before we get to the Reserve Bank, is there any economic rationale for what Donald Trump is doing? And some of his advisors, Treasury Secretary Scott Bessant for example, they're no fools.

So before we get to the Reserve Bank, is there any economic rationale for what Donald Trump is doing? And some of his advisors, Treasury Secretary Scott Bessant for example, they're no fools.

Well, I don't know.

Well, I don't know.

Fair comment! why is he doing it? Everyone's looking at this and you read about saying this is crazy, right, But surely there's some strategy behind it.

Fair comment! why is he doing it? Everyone's looking at this and you read about saying this is crazy, right, But surely there's some strategy behind it.

Yeah, I know, And I tick wondering that now we're all saying he's nuts. Maybe there's some sense to it, method to the madness, so to speak. There's all sorts of different theories being espoused. I mean, the basic view I think is that Trump is a form of mercantilist. He thinks that, you know, you should have trade barriers up and try and have all production in the US.

Yeah, I know, And I tick wondering that now we're all saying he's nuts. Maybe there's some sense to it, method to the madness, so to speak. There's all sorts of different theories being espoused. I mean, the basic view I think is that Trump is a form of mercantilist. He thinks that, you know, you should have trade barriers up and try and have all production in the US.

Very 1910.

Very 1910.

We have came back to the nineteen fifties, you know, like it was in happy days in American graffiti and cars were made in America and everyone drove a Chevy and a Caddy and played with Hula hoops. But I think that world is long gone, and there's lots of things that America doesn't produce as well as other countries can. For example, we get this example all the time. You know, we produced beef which is fairly lean because it's grass fed. Their beef is grain fed, so it's a lot fattier, so it gets blended in MacDonald's beef patties meat paddies. So there's a bit of a complementarity to it there. The aluminium that we export to the US, it grew, but it mainly grew because they couldn't get it out of Russia anymore as a result of war with Ukraine, so there was a reason for that. They seem to have this hatred of anything coming from offshore, and they want to see it come back to the US. But I think that will just in Polish American and I'll end up the lower living standard. Paul Keating and others worked this out many years ago. We could keep the trade barriers up there forever do the same thing as the US, perhaps make it such that I can trade in my existing Holden for a new one, which I can't do at present, and we might all be a little bit happier with that, but ultimately I think our quality of life will go down. And we saw right through that period of people were voting with their feet. We had Holdens and Fords and Chryslers and things, but people weren't buying the imports. Likewise with clothes and all sorts of other things. The ideal world is one where a particular country focuses on things where they have a comparative advantage, and they import things that other countries have an advantage. And that's Ricardian economics. Basically economics 101. But Trump seems to have upended that and thinks that he can just bring all production back to the US. But I think he's grossly mistaken. I don't see any logic in their so called reciprocal tariffs. I saw the calculation there. It's pure nonsense. Why Norfolk Island is in there just just highlights how stupid the whole thing is.

We have came back to the nineteen fifties, you know, like it was in happy days in American graffiti and cars were made in America and everyone drove a Chevy and a Caddy and played with Hula hoops. But I think that world is long gone, and there's lots of things that America doesn't produce as well as other countries can. For example, we get this example all the time. You know, we produced beef which is fairly lean because it's grass fed. Their beef is grain fed, so it's a lot fattier, so it gets blended in MacDonald's beef patties meat paddies. So there's a bit of a complementarity to it there. The aluminium that we export to the US, it grew, but it mainly grew because they couldn't get it out of Russia anymore as a result of war with Ukraine, so there was a reason for that. They seem to have this hatred of anything coming from offshore, and they want to see it come back to the US. But I think that will just in Polish American and I'll end up the lower living standard. Paul Keating and others worked this out many years ago. We could keep the trade barriers up there forever do the same thing as the US, perhaps make it such that I can trade in my existing Holden for a new one, which I can't do at present, and we might all be a little bit happier with that, but ultimately I think our quality of life will go down. And we saw right through that period of people were voting with their feet. We had Holdens and Fords and Chryslers and things, but people weren't buying the imports. Likewise with clothes and all sorts of other things. The ideal world is one where a particular country focuses on things where they have a comparative advantage, and they import things that other countries have an advantage. And that's Ricardian economics. Basically economics 101. But Trump seems to have upended that and thinks that he can just bring all production back to the US. But I think he's grossly mistaken. I don't see any logic in their so called reciprocal tariffs. I saw the calculation there. It's pure nonsense. Why Norfolk Island is in there just just highlights how stupid the whole thing is.

They've been been dropped. They've been dropped apparently, but they were there for forty eight hours or so.

They've been been dropped. They've been dropped apparently, but they were there for forty eight hours or so.

Yeah, and then they'd taken off. But how it even got there in the first place was just pure stupidity. I don't see any sense in this. A lot of people say, oh, let's go back to the past. You know, America was dreaming of the nineteen fifties. In the seventies, you know, going through a tough time, so they started watching American Graffiti, and Happy Days and Laverne and Shirley. But it's impossible that world is gone. If you bring production back to the US, and it will take years and decades to do that, you're going to end up with a lot of jobs for robots. And then when you ask Americans what do you want to do? What sort of job do you want to do? None of them say work on a production line in a factory. That's not what people want to do these days. Australians don't say that. I know, you end up doing things you maybe didn't dream of doing, but that's not what people dream of doing. We've moved on from that. The other aspect is America has a four percent unemployment rate. It's pretty hard to say that all their jobs have been stolen and gone somewhere else when they've got a four percent unemployment, right, you know, some would say they've still got a bit of a shortage of workers and now banning immigrants and yeah, kind of bring factories back, we'll just make that situation worse. The other aspect is I get it. Yeah, there's some parts of America that have really struggled as a result of the industrialization, and that's been really tough for American workers. You could argue the Hillbilly Elergy that reflects it to that to some degree. But then I sort of think about places like Geelong Newcastle in Australia. These were big industrial cities. You go to Newcastle thirty forty years ago, you'd look across the river there and see the steel works and the bit of an iffy placed here. Now go there and Geelong they look really, really nice.

Yeah, and then they'd taken off. But how it even got there in the first place was just pure stupidity. I don't see any sense in this. A lot of people say, oh, let's go back to the past. You know, America was dreaming of the nineteen fifties. In the seventies, you know, going through a tough time, so they started watching American Graffiti, and Happy Days and Laverne and Shirley. But it's impossible that world is gone. If you bring production back to the US, and it will take years and decades to do that, you're going to end up with a lot of jobs for robots. And then when you ask Americans what do you want to do? What sort of job do you want to do? None of them say work on a production line in a factory. That's not what people want to do these days. Australians don't say that. I know, you end up doing things you maybe didn't dream of doing, but that's not what people dream of doing. We've moved on from that. The other aspect is America has a four percent unemployment rate. It's pretty hard to say that all their jobs have been stolen and gone somewhere else when they've got a four percent unemployment, right, you know, some would say they've still got a bit of a shortage of workers and now banning immigrants and yeah, kind of bring factories back, we'll just make that situation worse. The other aspect is I get it. Yeah, there's some parts of America that have really struggled as a result of the industrialization, and that's been really tough for American workers. You could argue the Hillbilly Elergy that reflects it to that to some degree. But then I sort of think about places like Geelong Newcastle in Australia. These were big industrial cities. You go to Newcastle thirty forty years ago, you'd look across the river there and see the steel works and the bit of an iffy placed here. Now go there and Geelong they look really, really nice.

Reinvented.

Reinvented.

They've moved on, and that's what has to happen in America, and I don't know why they can't move on from it and recognize that manufacturing has been commodified. It's something that you do in countries with very low labour costs and that you don't necessarily want to go back to those days.

They've moved on, and that's what has to happen in America, and I don't know why they can't move on from it and recognize that manufacturing has been commodified. It's something that you do in countries with very low labour costs and that you don't necessarily want to go back to those days.

Stay with me, Shane will be back in a minute to talk about what it means on interest rates and what it needs for investors.

Stay with me, Shane will be back in a minute to talk about what it means on interest rates and what it needs for investors.

I'm speaking to doctor Shane Oliver from AMP. Interest Rates. Shane, what's it mean for local interest rates?

I'm speaking to doctor Shane Oliver from AMP. Interest Rates. Shane, what's it mean for local interest rates?

Well, I think they were going to go down anyway, but this just adds to the case. The threat to growth is far bigger than any threat to the higher inflation flowing from the tariffs. We're not going to retaliate. The Aussie dollar is actually proving quite resilient so far, so it's not collapsing. If anything's coming down, it's the US dollar. It seems like there's a rush out of the US going on here as investors think this isn't so good for America. But I think this just adds the case for the RBA to cut. We were looking at two more cuts this year and one more next year in February. First next cut coming in May. I think we'll certainly get a cut in May. Now the money market has a greater than one hundred percent probability of a cut in May, and I think that will be justified anyway by lower inflation. But there's now a good chance will get maybe more a couple more by the end of the year rather than just one more so that's the bottom line, lower interest rates and so there is a silver lining to the cloud here for many Australians who are seeing this horrible news out of the US that those with a mortgage might actually end up with lower interest rates than would otherwise have been the case.

Well, I think they were going to go down anyway, but this just adds to the case. The threat to growth is far bigger than any threat to the higher inflation flowing from the tariffs. We're not going to retaliate. The Aussie dollar is actually proving quite resilient so far, so it's not collapsing. If anything's coming down, it's the US dollar. It seems like there's a rush out of the US going on here as investors think this isn't so good for America. But I think this just adds the case for the RBA to cut. We were looking at two more cuts this year and one more next year in February. First next cut coming in May. I think we'll certainly get a cut in May. Now the money market has a greater than one hundred percent probability of a cut in May, and I think that will be justified anyway by lower inflation. But there's now a good chance will get maybe more a couple more by the end of the year rather than just one more so that's the bottom line, lower interest rates and so there is a silver lining to the cloud here for many Australians who are seeing this horrible news out of the US that those with a mortgage might actually end up with lower interest rates than would otherwise have been the case.

What about investors, what's the advice for investors.

What about investors, what's the advice for investors.

Well, I'm a little bit fearful that in the short term markets can still have another leg down. We've seen one leg down which was on the back of fears around the tariffs. Where yet to see hard economic data showing the impact of those tariffs, but that's likely to become apparent in the next few months and that could lead to another leg down in markets. So far as we talk, the US share markets down about twelve percent from its high, Global shares it down about eleven percent, and the Aussie share markets down around ten percent, and the great scheme of things that's a bit of a non events twenty I know you media types, I'm saying talking tell us about the billions that were wiped off the market with great excitement, But a ten percent fall from the top, you can say it's just a normal correction, and you think back to twenty twenty two, markets fell sixteen percent in the US market had a twenty five percent full twenty twenty. Both are about thirty five percent back to the GFC fifty five percent. So these things do happen. What we've seen so far is quite mild, but the risk is still on the downside. We'll have more downside here. Mon't be in a straight line, I don't think, but I suspect you've got to see more pain in America to get Donald Trump to back down a little bit. He's not going to pay much attention to just a ten percent fall, but if it's fifteen I've been saying a greater than fifteen percent correction here, fifteen percent plus if it's fifteen or twenty or headlines a about a bear market, then he's likely to respond, particularly given increasing pressure from Republican politicians. So I think in some ways, yeah, we might have to see a further fall just to get Donald Trump to back down a little bit, see some sense coming through and more of a focus on his tax cuts and deregulation rather than on the negatives.

Well, I'm a little bit fearful that in the short term markets can still have another leg down. We've seen one leg down which was on the back of fears around the tariffs. Where yet to see hard economic data showing the impact of those tariffs, but that's likely to become apparent in the next few months and that could lead to another leg down in markets. So far as we talk, the US share markets down about twelve percent from its high, Global shares it down about eleven percent, and the Aussie share markets down around ten percent, and the great scheme of things that's a bit of a non events twenty I know you media types, I'm saying talking tell us about the billions that were wiped off the market with great excitement, But a ten percent fall from the top, you can say it's just a normal correction, and you think back to twenty twenty two, markets fell sixteen percent in the US market had a twenty five percent full twenty twenty. Both are about thirty five percent back to the GFC fifty five percent. So these things do happen. What we've seen so far is quite mild, but the risk is still on the downside. We'll have more downside here. Mon't be in a straight line, I don't think, but I suspect you've got to see more pain in America to get Donald Trump to back down a little bit. He's not going to pay much attention to just a ten percent fall, but if it's fifteen I've been saying a greater than fifteen percent correction here, fifteen percent plus if it's fifteen or twenty or headlines a about a bear market, then he's likely to respond, particularly given increasing pressure from Republican politicians. So I think in some ways, yeah, we might have to see a further fall just to get Donald Trump to back down a little bit, see some sense coming through and more of a focus on his tax cuts and deregulation rather than on the negatives.

Shane, thank you for talking to Fear adn Greed.

Shane, thank you for talking to Fear adn Greed.

My pleasure, Sean.

My pleasure, Sean.

That was Doctor Shane Oliver, Chief Economist and Head of Investment Strategy at AMP. This is the Fear and Greed Business Interview. Remember this is general information only, and should always seek professional advice before making investment decisions. Join us every morning for the full episode of Fear and Greed and daily business news for people who make their own decisions. I'm Sean Aylmer. Enjoy your day.

That was Doctor Shane Oliver, Chief Economist and Head of Investment Strategy at AMP. This is the Fear and Greed Business Interview. Remember this is general information only, and should always seek professional advice before making investment decisions. Join us every morning for the full episode of Fear and Greed and daily business news for people who make their own decisions. I'm Sean Aylmer. Enjoy your day.