Donald Trump‘s falling out with the world’s richest man Elon Musk is set to hurt Australia economically because it could encourage the US President to take his gloves off in dealing with China.
Musk became the ‘First Buddy’ as Trump was elected and led the Department of Government Efficiency – tasked with trying to find $US2trillion in savings – but the pair have traded increasingly charged barbs this week on their respective platforms, X and Truth Social.
Multi-billionaire Musk owns the biggest stake in Tesla, which makes its electric cars in Shanghai, and was also the loudest critic of Trump’s punitive tariff hikes against the communist superpower this year.
Musk’s absence from Trump’s inner circle could huge ramifications for Australia if the US re-escalates its trade war with China – which, importantly, is the biggest buyer of our iron ore used to make steel.
Professor Peter Dean, the director of foreign policy with the University of Sydney‘s United States Studies Centre, said Trump would no longer hear the views of Musk, a businessman with strong ties to China.
‘It’s less likely [Trump would hold back on China tariffs] now that Elon Musk is out of government,’ Prof Dean told Daily Mail Australia.
‘Donald Trump will still continue to pursue the policies that he has, irrespective of what Elon says and Elon’s influence on Trump has basically dissipated.
‘What is Musk now? Musk is a businessman inside the United States like anybody else.’
Donald Trump ‘s fallout with the world’s richest man Elon Musk is set to hurt Australia economically because it could squeeze our exports to China
The Trump administration slapped 145 per cent tariffs on China in April.
While the US and China are in talks to substantially reduce them, Musk was clearly frustrated and predicted the American-led trade war would result in a recession in late 2025.
‘The Trump Tariffs will cause a recession in the second half of this year,’ he said on his social media platform X.
Prof Dean said Trump’s cabinet secretaries, with differing opinions on how to handle China, would no longer hear an alternative point of view within the administration.
‘Elon Musk is connected to China in many, many ways that actually work against some of the views of President Trump and his team and particularly their tariffs on China,’ he said.
‘This is another area of concern that’s caused this rift between Musk and between Trump.
‘He was clearly not listening to Elon Musk’s view on China and tariffs and he’s even less likely to do now.’
The fallout occurred just four months after Trump signed an executive order establishing DOGE, and putting Musk in charge with access to departmental files.
Musk, a billionaire, owns the biggest stake in Tesla , which makes electric cars in Shanghai
‘There’s a long history in the United States of billionaires and their involvement in politics – it normally always ends pretty quickly and it often doesn’t end very well because of the personalities involved,’ Prof Dean said.
‘I’m actually in one way surprised it’s last as long as it has.’
Sarah Hunter, the Reserve Bank of Australia’s assistant governor in charge of economic policy, said Australia would suffer from the US-China trade war if the Chinese government was too slow to put in place a stimulus package to spur demand.
‘If this were to occur the income flows from commodity exports would fall significantly,’ she told a Brisbane business lunch this week.
Iron ore prices have plunged by 15 per cent, from $US112 to $US95.70 as of Friday afternoon, after the US doubled steel tariffs to 50 per cent, including on Australia.
Weaker commodity prices reduce Australian government revenue from company taxes, leading to even bigger Budget deficits.
This could in turn make Australian companies less likely to invest as consumers cut back on spending in an already weak economy.
Weaker commodity prices reduce Australian government revenue from company taxes, leading to even bigger Budget deficits (pictured: Anthony Albanese at the North East Link Project in Melbourne)
‘While key parts of Australia’s export volumes may be relatively resilient to global demand conditions and uncertainty, domestic demand is unlikely to be completely insulated,’ Ms Hunter said.
‘Greater uncertainty about the future can lead households and businesses to save instead of spending and investing, and this is likely to be the case for Australian households and businesses too.
‘And increased borrowing costs and risk premia in global financial markets are likely to spill into domestic markets, further weighing on activity.’
Prof Dean said Trump’s tariffs lacked any kind of strategy, with the American President having second thoughts about banning Chinese social media platform TikTok, despite concerns about spyware.
‘He overturned the ban on TikTok because he personally likes TikTok,’ he said.
‘I don’t think there’s a huge amount of policy coherence – the President runs more on instinct.’
