What impact could the US election have on Australian small business?
What could the US election outcome mean for small businesses in Australia? Economist Hans Kunnen says the ramifications will hinge on US policy changes.
The outcome of the US presidential election could have far-reaching effects on markets and economies around the globe. But what are the implications for small businesses in Australia? Economist Hans Kunnen says the ramifications will hinge on how US policy plays out in the coming months.
The United States is the world’s largest economy and one that’s deeply entwined with Australia’s. In 2018-19 alone, trade between the two countries stood at over $76 billion, making the US one of Australia’s most significant economic partners.
While the result of the US election may not directly impact everyday Australians, ensuing policy changes have the potential to materially influence Australian businesses and the wider economy. Kunnen believes an economic stimulus package could drive a faster recovery in the US, which would have positive consequences globally.
“Whoever is going to sit in the Oval Office, there’s likely going to be an economic stimulus package,” Kunnen says. “The US is still one of the two biggest economies in the world, which is why we need it to recover.”
“The key, though, will be the quality of that recovery. It’s OK to spend money but you have to spend it in the right places. We don’t know where exactly money will be spent, but we can expect to see a big stimulus package – and that will be felt around the globe.”
Kunnen says a focus on infrastructure could turbocharge US economic growth and have a positive ripple effect on small businesses on our home soil.
“Both candidates want infrastructure spending, which will ideally create jobs and generate economic activity. If the US grows, their demand for our imports increases or they demand more Chinese goods and, in turn, the Chinese demand more of our goods. It has what we call ‘multiplier effects’.”
“We want the BHPs and the Fortescues of the world to do well, because a lot of their income ends up in Australia. When these big businesses do well, it has a positive ripple effect on smaller businesses. But that can only happen if the United States and the rest of the world are growing.”
While stimulus measures could help boost economic activity, small businesses that trade with the US will likely stand to feel the effects of a weakening US dollar, Kunnen explains.
“The broad view is that, whoever wins, the US dollar is likely to experience a weakening trend because these huge policies that provide stimulus cost money,” Kunnen says. “They’re working hard to keep interest rates low, and as the US borrows more money and slides into more debt, their relative risk increases.”
“US dollar weakness could present challenges for some Australian companies. When the US dollar weakens, the Aussie dollar goes up, and that makes it harder for our exporters.”
However, Kunnen notes that good diplomatic relations between Australia and the US – as well as the World Trade Organisation – will be pivotal in ensuring fair trading conditions for Aussie businesses.
“Economic growth generates trade, and that can only be beneficial. But there’s been a retreat from globalisation in the United States and they’ve been more inward-looking of late.”
“Regardless of who takes office, we may still see some soft protectionism, which could result in broad US tariffs and new regulations. Diplomatic efforts could be required on Australia’s part to ensure that we don't get caught up in any blanket tariff increases.”
“The World Trade Organisation exists to resolve trade disputes between nations, but it’s in gridlock and partially inoperable at present. If it could be revamped, that would grease the wheels for trade between countries.”
Looking forward, Kunnen believes the world’s economy, and consequently Australia’s small business landscape, rests on how effectively the pandemic is controlled globally.
“A big consideration for small business is opening the borders and bringing tourists and students back,” he says. “And that's a health issue, which requires a stronger response in the US and other countries across the globe.”
“If you spend more money on tracing, testing, hospitals, treatments and so on, and enact policies to keep COVID-19 under control, then you get a better medium-term outlook. If you ignore the problem, it won't go away rapidly. And that has economic implications.”
“Stronger global growth is good for the Australian economy, which makes Australians richer, and allows them to spend in small businesses.”
Regardless of the US election outcome and how the economy shapes up, sound financial planning and management can help position your small business for sustainable growth.
This article is a general overview and should be used as a guide only. We recommend that you seek independent professional advice about your specific circumstances before acting.