The USA-led trade war turmoil is likely to cause a global economic slowdown and also precipitate falls in interest rates.
I’ll explain how the Australian property market will benefit from both of these dynamics.
The impact of high tariffs
We are largely insulated from high tariffs because we produce almost everything we need.
Our major exports are iron ore, coal, natural gas, gold and agricultural products such as wheat, beef, and wine.
But, only about 4% of our exports go to the USA so if our prices remain competitive, exports could actually increase.
On the other hand, our major imports are petrol, cars, trucks, broadcasting equipment and computers.
Apart from petrol, any increase in the price of these will not immediately impact our economic performance.
The situation is very different in countries reliant on trade with the USA, whose leaders are urging their residents to buy less and to buy local, rather than pay more for imports.
This is why higher tariffs could lead to an international economic slowdown, even recession.
So what impact would that have on the Australian property market?
Our markets boom when others go bust
Our property market has always boomed during times of international strife, economic uncertainty and global recession because Australia is seen as a safe haven, located far away from all the trouble spots.
We enjoy an abundance of natural resources, have never experienced civil wars or famines, and have enjoyed thirty-four years of uninterrupted economic growth.
If and when economic and social conditions deteriorate overseas, more people will be motivated to move here, not only keeping our economy in growth but also putting more pressure on an already acute housing shortage.
International slowdowns mean more rate cuts here
Central banks are expected to compensate for higher tariffs by cutting interest rates and Australia is no exception, with our own Treasurer claiming that there could be four more rate cuts this year alone.
Reductions in interest rates stimulate the economy because one-quarter of our economic performance is generated from housing and housing-related services and goods.
Lower rates enable more people to obtain housing finance and to borrow more.
So not only are we largely insulated from the trade tariff wars, but we can expect lower interest rates and more permanent overseas arrivals from less fortunate countries.
Another property market boom is on its way.
