While investment markets note heightened risks of tariffs and trade tensions with the incoming Trump administration, professionals suggest it may have been more of a “campaign talking point” with US-Australia relations potentially faring better than expected under the new president.

Speaking at the 2024 ASFA Conference. in Sydney this week, Thomas Nides, vice-president, strategy and client relations at Blackstone and a former deputy secretary of state, allayed fears that President-elect Donald Trump would be able to “just dictate whatever he wants”.

While Republicans hold majorities in the White House and Senate, they hold a slim majority in the House “by two or three votes,” meaning passing Trump’s economic reform “isn’t going to be as easy as everyone thinks.” he said.

Nides also pointed out that Trump left office with tariffs on about $350 billion in Chinese goods that remain in place under the Biden administration.

“So the question is, how much more will President Trump do? How much is truth, how much is words? I don't think we know,” he said.

According to the investment executive, the president-elect is "much smarter" than is being assumed and is likely aware of the economic challenges that could arise from increased tariffs.

“I really think President Trump is a lot smarter than we on the other side of the political spectrum give him credit for. He is hypersensitive to middle class America and will understand the impact he is having. But in the end, the proof is in the pudding. Executing these things is much more difficult,” he said.

Also speaking at the 2024 ASFA conference, Willis Sparks, director of global macro and political risk consultancy Eurasia Group, noted that tariffs on China are likely to remain in place, albeit at a lower level than 60 percent , mentioned earlier during the Trump campaign.

"I wouldn't worry too much about the 60 percent, I think that was a talking point in the campaign, but there will be tariffs on China again," he said.

In particular, he suggested that markets could face two completely different scenarios regarding China's future role in the global economy, given its weakening position and slow economic growth in recent years.

"The first is a full-blown trade war. What if the United States, the Trump administration, just said, “We're going to smash these guys while we have the chance. They're economically weak right now, we're going to isolate them even more," Sparks said.

Alternatively, the US-China deal could be brokered by none other than Elon Musk, who has become a prominent member of the Trump administration, according to Sparks.

“Elon Musk clearly has large financial interests in China. Tesla is competing for market share in China, it has all kinds of AI projects,” he said.

"It shouldn't surprise us if in a few months, maybe up to a year, when Donald Trump sounds like he's waging war on China, there's some big breakthrough deal that's actually good for the world economy, good for China and good for the United States states."

Ultimately, "enough cooler heads" are likely to prevail to limit the 60 percent tariffs on China, he said.

Reflecting on the outlook for US-Australia relations under the new president, Sparks noted that Australia has a "big advantage" compared to many of its global peers.

“To my knowledge, Donald Trump has never mentioned AUKUS publicly. If you think AUKUS serves the Australian national interest, then Donald Trump's lack of interest in AUKUS is a good thing,” he said.

In contrast, Trump has tended to reach out to allies with "outrageous" statements and "excessive demands," Sparks explained, to get a deal on his terms.

"I'm not suggesting that Australia is immune from this, but again, the US has a trade surplus with Australia, so in terms of working with Donald Trump, that's a big advantage," he said.

"Frankly, I think in terms of the most disruptive policies, Trump will probably focus on Europe, on NATO and on Mexico and Canada and renegotiating the North American Free Trade Agreement."

Last week, Treasurer Jim Chalmers revealed the Treasury's scenario analysis of the US election suggested Australia could do well under Donald Trump's policies in the short term, although he raised concerns about the long-term impact.

Earlier, Treasury Secretary Stephen Kennedy confirmed Treasury modeling highlighted major ripple effects for Australia in the event of a Trump victory, particularly if US trade tariffs were to rise sharply.

Speaking at a Senate budget estimates hearing, Kennedy said: "In general, imposing trade restrictions such as tariffs tends to lead to lower growth and higher inflation."

"The implications for Australia are more about growth because of the implications for China, of course, and their demand for our goods," he added at the time.