From The Australian. Here's what's on the front. I'm Claire Harvey. It's Tuesday, April eighth, twenty twenty five. There's a risk of recession. Those chilling words from the Treasurer Jim Chalmers, as all sides of politics and a panicking market react to Donald Trump's sweeping tariffs. Releasing Treasury's pre election forecast, the government says that next rate cut could be as
big as fifty bases points. The leaders meet on Tuesday night for the campaign's first debate, as Peter Dutton dumps his policy of ending public servants work from home, and Anthony Albanez he seeks to reassure Australians he can handle the relationship with Donald Trump. One in three university applicants have claimed bonus entry points based on factors like disability, divorce, domestic violence or mental ill health. That's an exclusive live now at Beaustralian dot com dot AU. Tariffs are bad
and free trade is good. That's supposed to be the economic consensus. But throw a populist politician like Donald Trump into the mix and suddenly everything we thought we knew about globalization and raising living standards gets chucked out the window. Today, I'm joined by our business editor Ves Napolak, who's at the center of the biggest story on Earth, to work out how Australia and our economy fit into this new world order.
Bueller Bueller.
Ferris Bueller's Day Off will be forty years old next.
Year, Bueller Buehler.
But the John Hughes classic, which launched Matthew Broderick to stardom, captured something about adolescent malaise that's still perfect today.
In nineteen thirty, the Republican controlled House of Representatives, in an effort to alleviate the effects of the Anyone, Anyone the Great Depression.
School was just so boring. The teachers wanted to talk about things like tariffs.
Passed the Anyone, Anyone the Holly Smoot Tariff Act, which raised tariffs in an effort to collect more revenue for the federal government. Did it work, Anyone? It did not work, and the United States sank deeper into the Great Depression.
If only more Americans had paid attention, we might not be here tonight.
Trump's tariffs and financial markets into free from.
Twenty five billion dollars wiped off the.
Ax cten concerns of a recession at a global trade war.
I find so few parallels with what we've seen before, and that's what's truly scary about this time. In March twenty twenty, in the COVID drawdown, smart investors knew that once we were past the worst of this, we were walking into one of the greatest consumption booms in history and everyone was going to be feeling really good and most importantly, they were going to spend. This is not
the case here. This one is properly scary and no wonder one hundred and sixty billion dollars was wiped off the ax on Monday.
Ve's Napolak is the Australian's business editor and her newsrooms around the country are melting down right now along with the stock market.
Everyone's a markets writer today, Claire. We're talking to people who are really quite well off. You would think that, you know, they're not going to be so bothered by it four five percent draw down. You might be surprised that some of them are. And we're also talking to experts in the market who advise investors and manage money for a living, and those are the guys that are the most inclined to panic right now because suddenly everyone's
ten percent poorer. It's measurable, and that's what makes it scary.
Reason it's ninety five years since the Smooth Hawly Tariff Act failed to help the US, and the reason it failed is that other countries retaliated by imposing tariffs on American goods, and that reduced global trade. But how is it that we've ended up in a place where that message has been forgotten?
I think we forget how hard we fought to get here, and a lot of the benefits of free trade can be minimized really easily, and that's exactly what's happened since twenty twenty four. So we get to a point everybody is feeling quite well off because the market has had some spectacular games until now. So the feeling is not one of, well, you know, there's a lot to lose. The feeling was one of let's see where this goes.
And in hindsight, that was nice. But what's also true up until last year was your iPhone, your car, and your Lululemon never costs more than it did because of inflation. And I think a lot of things in history have really capitalized on inflationary periods where we ziggered with zag
this instance, we've definitely zagged. But it's why central banks, including the RBA, have been so so serious about the scourge of inflation, because it does lead to events like this because people get fed up and cost of living is something we've been talking about for three years and it's no small thing. The wealth effect of the share market is a wonderful thing, and quite a lot of people participated that. But that's different to the scorecard of
Bill's iPhones, legging sweet whatever it may be. Like, everyone has a reference point for these, and frankly, it's only been going up.
On social media. Americans are alternating between defending Trump's tariffs and explaining the whole concept to one another.
I think it's a negotiation strategy, so it's going to be outrageous and something to catch everyone's attention and then eventually there'll be some negotiation.
I am not worried about price school or not. Why so, I'm not going to be man anything.
We pay the terraffs, but the companies pay the terroriffs, not us.
Shina doesn't pay the terriffs.
I voted for CRAMP, but I didn't vote to lose my and I didn't vote for a global trade war, and I didn't vote for Elon Musk run a muck. Why are y'all going to admit that he has no idea what he's doing?
Here in Australia we've had a sort of sea sawing relationship with tariffs, just like the United States have. We've had tariffs in one form or another ever since settlement. Really, in fact, we had a military coup because of tariff's in the early years of the New South Wales Colony. The Rum rebellion was really about import restrictions and tariffs on the trade in alcohol. Where do you think Australians are at now in their understanding of, you know, whether tariffs are a good or a bad thing.
I think it depends what part of the economy you play in. So fundamentally, the national accounts are a huge beneficiary of the iron ore trade. So we dig up iron or we sell it and that's what funds fiscal sped dig So that's cool. But you might feel a little bit removed from that if you're not working in the pilbro except that would be a mistake because we're not that removed from it. At all. If global growth slows, there's less demand for iron ore and things get fiscally
a lot more vulnerable. Just because you're not a five FO worker or running an automated train or something, it doesn't mean that you're removed from this. This is something that will all feel.
Yeah. So the government's ability to pay for things like roads and schools and hospitals and discounts on your electricity bill, that's linked to globalization in a way that some voters might not understand.
We're so interconnected.
Absolutely coming up. So should you buy that new car now or hang on to your money? So looking ahead, Donald Trump is saying, everybody, stop panicking. I'm going to go and play golf this weekend. It's going to be phenomenal. Everything's going to be okay. Is there a way in which this is going to be okay in which it does settle itself out?
I think both of those things can be true. But that doesn't rule out or minimize the fact that we could have tremendous more pain ahead and buy more pain ahead. I mean, the market could draw down a further ten percent, and that would be a terrible thing. We also coming into this position without the benefit of the company tax cuts that the last Trump administration brought in at the market was hugely receptive to. So there's a lot more downside.
And the other element to that is the starting point. The world was never richer, So the S and P five hundred, you're and video shares, whatever it may be, there is just so much more to lose from such a rich starting point. Where market strategists, investors, hatch funds were repeating themselves endlessly say there's no fundamental basis for these valuations, and they were right. We can't say we weren't warned because we did hear that information and we didn't really act on it.
Have you been surprised by how much the market seemed to have been surprised by this.
Yes. I think what it came down to was that feeling on Friday, when after Liberation Day, everybody was unified in saying, this is worse than we thought. It was a gambit, it was a trade play, it was bringing people to the table. It was none of that. It was actually just really bad.
So there's a reassuring kind of idea that we could tell ourselves that actually what Donald Trump really wants his critical minerals and that this is the bargaining chip, This is the start of the negotiating process to make sure he gets the critical minerals that the United States needs to make the chips that make everything go. Is that a possibility.
It's a possibility, but it wouldn't offset the broader, more debilitating wealth effect that's happening. It's not nothing, but it's a very small thing in what could be a setback for global growth that takes us so many years to recover from.
Is there a possibility, there's no. Given that every Australian has some money in superannuation, even if you're not actually exposed to the stock market, you have a super balance. Is there a possibility that will reduce inflation here in Australia that make people more conservative, less likely to go and spend.
There is a possibility. I think it's too early, genuinely to know, and it's fundamentally more of a bad thing than a good thing. Demand is everything. I think when you don't have demand intact, everything else is a second thought. And so that's why recession is such a loaded word, because it destroys everything.
Anthony Albanezi is basically saying stay calm, don't worry about it. Peter Dutton is saying, well, this is actually a really big concern. How do you think they are playing it? How should they play it?
I'm so glad you asked this, Claire. I'll tell you because this year we don't have eleven RBA meetings in a year. We're on the new Progressive RBA schedule and we're not going to hear from the RBA until after the election, which feels like a really extraordinary thing, like where's our central bank? We want to hear what they think they can have such an influential role and voice in this crisis and be neutral and a source of truth. But there's no meeting, so I think people feel quite
a bit winded by that. So I'm really curious, just as a student of the market, to see who will be the voice that decides to carve out a position of calm here.
Do you think there'sn't that we've lost the consensus about free trade, that it's no longer widely accepted really even by economists, that free trade is universally a good thing, and that it's a rising tide that lifts all boats.
Yeah, I do think so Claar. I think that's a really honest observation, and we're probably all a little bit guilty of losing our trade literacy in all of this. And there are from time to time you see really interesting business case studies of a car maker or a beverages company. It's carved out a beautiful little global niche by arbitraging some weird tariff scheme or regime. Look, that's nice, but nothing's better than global growth. We know what global
growth does. It advances everyone's a lot in life. And this is a walk back from that.
If you were advising someone just asking for a friend who was thinking about buying a car or maybe thinking about getting a new phone, what would your advice be.
It's a great question. It's probably what everybody's thinking. And just like the share market, which is a sea of read today, there's no buyers. Why is there no buyers? Because it could be five, ten, fifteen percent cheaper, So hold on, Well, there may be a better deal in it for you if you can just hang out a little bit longer.
Vesnopoljak is The Australian's Business editor. This story's moving fast and you can keep up with the latest all the time at the Australian dot com dot au