Australian shares closed sharply lower on Wednesday, as the world’s two largest economies entered into an escalating trade war, evaporating any hopes that a last-minute compromise might take place.
Donald Trump’s super-sized tariffs against dozens of countries, including 104% duties on Chinese goods, came into effect part way through the Australian trading session, souring the mood for investors.
By day’s end, the S&P/ASX 200 was down 1.8% and had lost more than $40bn in value, erasing most of the rebound in prices that occurred a day earlier. The benchmark now sits at 7,375 points, just above the levels recorded on Monday after suffering its biggest one-day fall in almost five years.
Mining and energy companies were among the biggest casualties, due to concerns that a global economic shock would limit demand for everything from iron ore to oil and gas.
Shares in major miner Rio Tinto were down more than 5%, while the stock price of oil and gas giant Woodside were down almost 4%.
Traders also needed to grapple with Trump’s announcement that he would introduce a “major” tariff on all pharmaceutical imports, sending shares in most non-US biotechs lower.
Australia’s largest biotech company, CSL, which manufactured vaccines domestically during the pandemic, closed down more than 5% on Wednesday.
Victorian-based Neuren Pharmaceuticals, which develops drugs for neurological disorders, also fell more than 5%, while dermatological company Botanix was down more than 9%.
Analysts at IG warned that the Australian economy would be hit by the deterioration in trade relations between the US and China.
“If China does dig in, tariffs on its imports to the US will rise to a staggering 104%, a dire outcome for Australia’s trade-dependent economy and a potential catalyst for another round of broader risk aversion,” IG analysts said.
The Commonwealth Bank chief economist, Luke Yeaman, said that while Australia was “relatively well-placed to weather the storm”, it would be subject to flow-on effects from a protracted trade war.
Over the past week, share markets have tended to fall when trade relations deteriorated and rebound when there were signs Trump would strike agreements with key economic partners.
The Australian dollar retraced some of its early falls on Wednesday, to hover just under US60c late in the day.
The weakness in the currency, which is heavily influenced by the Chinese economy given Australia’s resources ties, has made it more expensive for most travellers heading overseas and consumers buying international goods.
