Martin Conlon, Schroder’s head of Australian equity, said Donald Trump’s tariffs on China posed a risk to Australia, particularly if they weakened the Chinese economy and reduced demand for Australian exports.

As well as the direct economic impact, Conlon said it could also weigh heavily on the Australian share market.

“Subdued sentiment on China and poor housing affordability and economics set the stage for bearish ratios for Australian shares and threaten future returns,” he said.

"In an environment where investors are becoming more inclined to chase hot topics at incredibly high valuations, it is perhaps understandable that most investors are happier running with the crowd than feeling lonely."

Conlon said China, as a manufacturing-oriented economy, typically responds to economic weakness by boosting production. However, without domestic demand to absorb this output, China increasingly acts as an intermediary between raw materials and export markets.

The CBA raised similar concerns, saying about a fifth of Australia's exports to China were re-exported to other countries.

Economists at the big four banks said while Australia may be relatively insulated from the direct impacts of President-elect Trump's tariffs, the bigger risk lies in knock-on effects on the Chinese economy, which could weaken demand for Australia's key exports.

“A 60 percent US tariff on all Chinese imports, ceteris paribus, would slow the growth of the Chinese economy. As a reminder, economic growth in China was already insufficient in 2024,” it said.

In the event of a slowdown, China's massive influence on commodity markets could cause commodity prices to fall, posing the most direct risk to Australia's economy.

"Falling commodity prices, particularly iron ore, would lower Australia's terms of trade and lead to less export earnings, government revenue and corporate profits," the CBA said.

“Resource export values ​​will fall significantly if Chinese growth slows. Private Australian investment and consumption could also decline in response to lower export earnings.

Explaining this, the bank said the murky outlook for raw materials locally could make miners shy away from investing to expand or maintain production.

Notably, mining investment is expected to plateau this fiscal year, after several years of gains.

Despite these risks, the CBA said Australia has several buffers to help protect its economy. Among them is the depreciation of the Australian dollar, which can protect local export businesses. The big four banks also said a negative demand shock in Australia could prompt the Reserve Bank of Australia (RBA) to ease monetary policy.

“Australia's exports to China are dominated by mining and energy commodities: iron ore, gas, coal, gold and other minerals. But Australia also exports services – mainly education and travel – and agricultural commodities, including wheat, wool, beef and grains, which could benefit from a consumption-focused stimulus package,” the CBA said.

"Given this and the 'dampers' to the Australian economy of flexible exchange rates and interest rates, as well as the likely reaction from the Chinese authorities, we believe a significant decline in Australia is unlikely, but it is a tailwind that should be taken into account.'