Already and this is the daily This is the Daily ohs oh, now it makes sense. Good morning and welcome to the Daily OS. It's Tuesday, the eighth of April. I'm Billy Fitzimon's.
I'm Sam Becazowski.
If you've looked at the news over the past couple of days, or if you have shares and you've checked them, you would know that there has been a significant fall in the stock market. Just yesterday in Australia, more than one hundred billion dollars was wiped from the Australian share market. It's all because of the tariffs that were imposed by US President Donald Trump on all countries, including Australia last week.
To understand in more detail why this has happened and what it means for the average Australian today, I am interviewing the chief economist at the Australia Institute, Greg Jericho.
Billy, this is one of those topics where there is so much economic jargon flying around it can be hard to keep up and it can be hard to find a way into this story.
Yeah, I feel like this is one of those topics where I really should have been paying more attention in my year turn commerce class.
Oh, I definitely missed that, Yeah, and I had to catch up. It's taken a long time. We did a show on that last week, Zara and I and maybe you will throw a link in the show notes. It's interesting to listen to that now almost in retrospect, because that was kind of almost what we thought was going to happen. On Liberation Day, that was the big day
that Trump announced all the tariffs. He held up that big placard with how much countries are going to get essentially taxed on all the goods that arrive into the US. And it turns out we were pretty much spot on. The rest of the world was as well. This was a major move.
Yeah.
And so just to give you a really quick overview, if you're hearing the word tariffs and you're not quite sure what it means, it is a tax on import, So it means that it's more expensive to import something into a country, in this case America. Now, like you just said, Sam, last week, Trump announced new tariffs on all imports into America and that includes a blanket ten percent tax on all Australian goods entering the US. And he said he mainly did this because of something called a trade deficit.
And that's another term that comes up a lot. So we've got tariffs. Now talk me through a trade deficit.
Okay, I'm going to explain this using apples. So let's say Sam, you and I are both nations, and in one year I sent you one hundred apples and you sent me seventy apples. That would mean I am in a trade deficit of thirty apples because I sent you thirty more apples than you sent me.
Right, So I'm thinking fruit bowls, yes, And I've got more apples in my fruit bowl after our trade.
Relationship because you took more from me, exactly. And so President Trump wants to reduce that gap. He wants you to buy just as many apples from me as I am sending to you. And he argued that a trade deficit like this means that countries, he says, are ripping off Americans and that America needs to reassert it self
in the global economy. Now, in terms of who this impacts the most, it's actually US consumers because those are the ones who absorb the cost of these tariffs, because it essentially means that it makes it more expensive for them to buy things from other countries. And so Trump's big hope here is that Americans don't buy stuff made overseas like in Australia because it's now too expensive, and instead they'll be more encouraged to buy US made goods.
And his hope is that by doing this, the US economy will grow.
I heard a really good example over the weekend of T shirts. So America only produces three percent of all the T shirts that are sold to Americans in a year. So ninety seven percent of T shirts bought by an American come from overseas. That in Trump's world, he's trying to get that to more be one hundred percent. And so he's going to make the T shirts that arrive from the Philippines or Taiwan, or Sri lank or Cambodi or China. He's going to make those T shirts more expensive.
And that is exactly why he introduced these tariffs. Now, if you're listening to this and you're a bit lost, don't worry. I think the one thing that I want to point out before we dive into this chat with Greg Jericho is I think the word that you need to keep in mind is uncertainty. Even if you don't feel like you're fully grappling with the economics of it all,
because it is really complicated. The core thing to remember is that the events of the past few weeks have led to investors feeling uncertain because they can't predict what is going to happen next. No one knows what Trump is going to do next, and whenever there is uncertainty, we usually always see crashes like this in the stock market.
Even if you think about the pandemic, which you'll hear Greg Jericho mention, that's another time when there was so much uncertainty and that also led to a stock market crash.
I always find it helpful to remember that the economy is actually based on psychology. It's based on how people are feeling. And when there's a bit of fear and a bit of panic and a bit of uncertainty, that's when you see major moves in the market. So let's hear that chat now with Greg Jericho.
Greg Jericho, thank you so much for joining the Daily OS.
Norah's Billy great to be here.
So we are seeing another significant fall in the stock market at the moment. Before we get to that, though, can you take me through what US President Donald Trump announced last week.
Oh god, how to say it without breaking into sad laughter, because what he announced was basically tariff's on every single nation on earth. Initially with the story was he was going to do this thing called reciprocal tariffs, which is pretty straightforward. If you've got a ten percent tariff on our stuff, we'll put a ten percent tariff on your stuff.
But he didn't do that at all. What he did was.
He worked out what was the trade deficit that America had with every country, and so if let's say Vietnam exported ninety percent more stuff to America than it bought from America, then he said, oh, you've got a ninety percent tariff on us, so we'll have that and we'll put a forty five percent tariff on you. And it made no sense because a lot of these nations are poor, they're small, a lot smaller than America, so of course they're going to sell more stuff to America than they're
going to buy from it. And places like Australia, where we actually do buy more stuff from America than we sell to it, he couldn't do that, so he just put a flat ten percent tariff on nations like Australia.
So that's pretty much what he did.
And really what that means though, he decided to make everything that America imports from anywhere more expensive for Americans to buy, and that really has sent everything into a bit of a meltdown.
And so he's made it more expensive for Americans to buy products from Australia. But for those of us in Australia, what's the tangible impact on us? Or is it more businesses in Australia that are impacted than the average consumer.
Yeah, Australian consumers really shouldn't be affected at all. If you go into a shop and someone says, oh, we've had to raise prices because of the tariffs, call bullshit on them straight away. Because tariffs are paid by the country that levies them. So America put all these tariffs on other nations who pays the people importing them. So if an American wants to buy some bee from Australia, suddenly it's going to cost well, potentially ten percent more than it did a week ago. It does not affect
our consumers. The cost of things in Woolli's calls doesn't affect all. It does affect businesses. Obviously, if you're a business that is selling stuff to America, well, now it's going to cost the American importer tempercent more to buy that stuff from you, so they might buy a bit less. So we don't even really know what the impact on owning business.
Is going to be.
I think, really we shouldn't be overreacting. It's not going to affect them too much.
Will have an.
Impact mainly because Americans are are all going to be a lot poorer because everything's a lot more expensive. Their incomes haven't gone up, so they have to cut back on how much they can buy.
Okay, But the way that it has potentially impacted the average Australian consumer is if you have shares and we have seen a crash. Can I use that word crash or is that a technical term that there has to be a certain amount of full before you can use that word.
Oh yeah, I mean I don't know if it's been a crash yet. It has just been a big plunge I think is the nice way of putting it. But I mean, you know, the value of our stock is change is full and ten sent in the last week since Donald Trump had his moment of madness. Crashes are more sort of ten to fifteen percent in a day. When you start seeing that, that's when you start thinking crash.
And so why specifically has it had? Like what's the relationship between tariffs and a fall in the stock market?
Yeah, really, what the investors are worrying about, they're looking at what's happening with China as much as anything. Is that one, he's put a pretty big tariff on China. China has retaliated with a big tariff against America. So that's going to make everything more expensive in both America and China. So both of their economies are kind of going to slow down because they're going to be spending less,
they're going to be producing less. And if China's economy is weaker America's economy is weaker, then there is this belief that, oh, Australian mining companies especially are going to be worse off. And when that happens, Irvan's like, well, I don't want to hold these shares anymore because they're going to be worth less, so let's get out of them. So that's really what we're seeing everyone kind of freaking out thinking, oh, we're in for tough times. Maybe I should put my money elsewhere.
And in the context of how bad is this one?
Oh, look, it's significant.
It's not quite as bad as we saw during the GFC or even during the first sort of minutes of the pandemic, but this is pretty pretty significant. It really has kind of wiped out all of the gains of the past year or so.
You know. It's not a case of we're in.
Great depression territory or things like that, but it's one that is certainly going to be remembered. And what is more concerning is it seems to be ongoing. You know, we had a bit of a fall on Thursday and then on Friday, and there was no calming over the weekend. It's this ongoing impact of everyone thinking, I don't know if Trump has any clue what he's doing, and he seems to think he's doing a good thing, which means maybe he's not going to reverse it. So that's what
everyone's scared about. And the worry is that it's just going to keep getting worse and worse, and that that is certainly a big worry.
Is this all in the hands Trump? Like, is he the only one that can kind of turn this around?
Pretty much.
I mean, all of this has happened because of Trump, and we know America it's easily the biggest economy in the world, China behind it, and so he's the one who can pretty much stop all this occurring. If Trump decides to keep these tariffs in place, well, then Americans are going to be paying a lot more for everything, and that means they're going to be buying a lot less of stuff. And when you're buying less of stuff,
then you're producing less around the world. You're employing fewer people to produce that, and that has accumulative effect and suddenly you're in a recession.
Do you think there's a chance Trump will reverse his tariffs because he doesn't want to go into a recession, right.
Yeah, Well you'd hope.
So I think what you're saying is everyone's hope that he will pretend that he hasn't backed down, but actually back down and he'll declare victory. But the worry is he's continuing to go with this line that, oh this, you know, there needs to be some strong medicine to fix this, and so there will be some pain in the short term, but then it's all going to come roaring back, and it ain't going to come roaring back because the problem is Trump sees a deficit, a trade deficit,
as America losing, and it's not. It's just Americans getting cheaper stuff or getting good quality stuff. I hope that he does do his usual thing of back down when he's made an error, but make it sound like he's won, and all his mega supporters will go, yeah, look at him. He got all these great deals done, and everyone who actually knows anything will just go, yeah, that was just a three months of idiocy that we just endured where everyone lost money. But Trump is making it sound like
it was a win. That's the hope. The problem is he's also got some advisors who told him to do all this. I worry that he'll keep persisting with that, and if he does, the longer this goes on, the worst it is for Americas, and as a result, the greater the risk that we're going to get caught up in all this terrible wash.
Your expert opinion as an economist is obviously that this is a horrible thing. Apart from Trump, Are there any economists saying that this is a good thing.
No, there's no economists out there who are saying this is a great thing unless you're someone who's trying to curry favor with Trump or or appeal to his type of supporters. Everyone else is gone and going this is just a bit of idiocy that has just made everything more expensive for Americans for no benefit whatsoever.
Final question, are we heading for a recession?
Oh?
Look, I never like predicting those type of things, because there are things that can be done. The Reserve Bank can cut interest rates, and that seems very likely to happen now in May.
And probably he just explained that why would this result in a further interest rate cut?
Yeah, I mean basically, we've all been worried about inflation, and so the Reserve Bank has raised interest rates to try and slow the economy to get fewer people employed. Really, I mean when the Reserve Bank raises interest rates, it means it wants more people to lose jobs, essentially because people have got less money to spend in the shops.
And if you've got less money to spend in the shops, then the shop owners going, yeah, I don't think you need an extra shift, and actually I'm going to have to cut back your shifts completely. But if things look like they're slowing down, then the Reserve Bank does the opposite. It cuts rates. People feel like, oh, I've got more money to spend. Businesses small businesses like, oh it's cheaper
for me to borrow, so they can borrow. That kind of helps keep people employed, helps keep money moving around, helps keep the economy going, and so the Reserve Bank will definitely look to do that. Certainly we don't need to go into recession. But you know, if China slows down, if America really goes into recession, if Europe also struggles because they're putting tariffs on as well, it's kind of hard to avoid everything happening bad in the world happening
here as well. I mean, we saw fifteen years ago during the global Financial crisis, everywhere else in the world had the Great Recession. Here in Australia we didn't go into recession due to government policies, due to the Reserve Bank cutting rates. So you know, it's not a certainty, but all the risks are now on the downside. All the real concerns are about just how slow things might get.
Not the rosiest of pictures, but thank you so much for explaining it to us.
Greg Jericho Noah is Billy always good to chat.
A fascinating chat as always from the Australia Institute's Greg Jericho Billy, thank you for facilitating that for us this morning. That's all we've got time for on today's episode of The Daily Oz. I'm sure there are a lot of questions that have come from that podcast. You can always jump over to our Instagram and dm us questions that you want us to explain, particularly around the global economy. We're going to be back in the afternoon with your headlines.
Until then, have a great date. My name is Lily Maddon and I'm a proud Arunda Bungelung Kalkadin woman from Gadighl Country.
The Daily oz acknowledges that this podcast is recorded on the lands of the Gadighl people and pays respect to all Aboriginal and torrest Rate island and nations. We pay our respects to the first peoples of these countries, both past and present.