Amidst all the Trump-induced chaos and uncertainty, there are opportunities for other countries.
Tariffs, policy chaos, deportations – even challenges to the rule of law. So much of the Trump administration’s agenda represents an act of economic self-harm for the US. No wonder US consumer sentiment has plummeted in the past few months. Some of that sense of gloom even leaked into other countries such as Australia, though to a much lesser extent. Certainly, global economic growth will take at least some hit because of the US’s travails. Yet for countries other than the US – including Australia – the current situation also presents opportunities, not all of which have been fully appreciated.
The first opportunity stems from the overvaluation of the USD, which is still more than 15% above standard estimates of inflation-adjusted fair value against its trading partners, including the AUD. An overvalued currency means an uncompetitive economy. This opens up opportunities for firms in other countries, either to sell into the US market or to bid business away from US competitors at home or in third-country markets. While tariffs override this advantage for goods sold into the US market, the same is not true for services.
Recent comments about tariffing foreign-made films might suggest that services imports more broadly could soon face similar imposts. However, it is unlikely to be practically feasible to tariff much services trade. Try as it might, the Trump administration will not be able to tax Americans’ spending on overseas holidays – at least not without some severe intervention in global card payment systems, and I don’t want to give them ideas.
Nor will it be feasible to tax the burgeoning trade in software, miscellaneous consulting and other business services. Professional services and software licencing are both large export industries for Australia, each generating more than $7½ billion in export revenue in 2024. Within the former, consulting, accounting & auditing and legal services each generated around $1 billion of export revenue. To put these in perspective, $7½ billion annual export revenue is more than Australia’s
2024 exports of copper metal, or aluminium, pharmaceuticals, alcoholic beverages, wool, rice or barley – and not much less than last year’s wheat exports.
Not all of these services exports go to the US, but it is the largest single destination for both of these broad services categories. While ever the USD remains overvalued, consultants, auditors and all those other providers of professional services will be able to undercut their American competitors for work in the US and elsewhere, whether by traveling or working remotely. And unlike say, manufactured exports, it will be easy to pivot when that overvaluation eventually unwinds.
The second opportunity stems from the revulsion-and-reallocation phase in global asset management. As we have previously discussed, the fading of the ‘US exceptionalism’ narrative means that asset managers globally are deciding that they want to be a bit less long US assets. This process had already started before ‘Liberation Day’, with US equity markets selling off and European equities rising, especially defence companies, over February and March. So far, Europe has been the main beneficiary of this asset reallocation. This is unsurprising given that European and UK-domiciled asset managers are such a large fraction of the global industry.
Australian-domiciled asset managers will nonetheless be contemplating the same issues. Aggregate data on Australia’s international investment position show that US equities were around 55% of portfolio equity assets in 2024, and US debt securities were more than a third of portfolio debt assets. (The share of US investors in Australia’s portfolio liabilities is noticeably smaller for both asset classes.)
This revulsion and reallocation process need not be a case of bringing assets home. It is simply that reallocating out of the US means reallocating into something else, and that something else can be more diversified and include Australian assets, regardless of the location of the end investor. Some of that reallocation will mean more capital, or at least cheaper capital than otherwise, for needed investment in the climate transition, in infrastructure and other areas.
A third opportunity, perhaps related to the second, centres on the defence industry. With the US under Trump looking like a less reliable defence partner and wanting its allies to provide for more of their defence themselves, Europe and other aligned nations such as Canada are looking to re-arm. In doing so, they are looking for alternatives to US equipment.
Again, this is more of an opportunity for Europe, noting that it already has extensive defence and aerospace sectors and other manufacturing industry that can be retooled. Here too, though, Australia can capitalise on this opportunity and is already doing so. We have already noted the offshore interest in Australia’s JORN (Jindalee Operational Radar Network) over-the-horizon radar technology. We are hearing from a range of clients that this interest has broadened to other countries and products. Australia has a significant defence equipment industry and provides overflow production capability for a range of overseas customers. Several offshore-headquartered defence technology firms already have operations here, building equipment for European military forces.
The broader point here is that other countries are not the US and are not constrained to behave in the same way. People adapt to events beyond their control, including the policy gyrations of other countries’ governments. To be fair, the constant renegotiation and uncertainty around some of the Trump administration’s policies makes it difficult to plan and make investment decisions involving the US. Even so, the currently overvalued USD, asset reallocation and defence pivot are all shifts that are robust to the daily headlines.
