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Speaker 1: Welcome to the Fear and Greed summer series, brought to

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Speaker 1: you by WESPAC. I'm Sean Almer. It's fair to say

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Speaker 1: that the election of Donald Trump has brought a touch

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Speaker 1: of volatility to the global economy in markets. Will it

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Speaker 1: continue in twenty twenty six? My guest today is Westpac

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Speaker 1: chief economist Lucy Ellis. Lucy, welcome back to Fear and Greed.

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Speaker 2: Always a pleasure, Shawn, thanks very much.

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Speaker 1: Do you think he's brought a touch of volatility to

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Speaker 1: the global markets.

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Speaker 3: I think that's no controversy there. I think he just

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Speaker 3: the headline risk that we've been dealing with since inauguration

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Speaker 3: has been extraordinary, and it's important to look through some

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Speaker 3: of that. You know, some would say Trump always chickens out.

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Speaker 3: I say Trump amber claims often. You know, a lot

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Speaker 3: of the things that get announced don't necessarily play out

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Speaker 3: as expected. There's been some new developments on trade in

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Speaker 3: recent weeks, some of which might be tightening things up

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Speaker 3: a bit.

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Speaker 2: I think in the end, you.

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Speaker 3: Know, the US is going to realize they can't actually

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Speaker 3: you know, disentangle themselves from China anytime soon, and that

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Speaker 3: means lower tariffs.

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Speaker 1: So let's start with the US. Why is it important

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Speaker 1: to Australia given our trade relation is actually reasonably small. Yeah,

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Speaker 1: but is it just the flow and effect from the

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Speaker 1: rest of the world. Why do we care so much

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Speaker 1: about the US? Donald Trump and means great media for

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Speaker 1: people like us. But why do we care so much

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Speaker 1: about the US?

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Speaker 3: Well, I think the media bandwidth that is occupied by

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Speaker 3: goings on in the US relative to other economies is

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Speaker 3: outsized compared with its actual impact on Australia. There are

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Speaker 3: definitely things that matter, you know, what's going on in

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Speaker 3: the stock market, how the global investment community is feeling,

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Speaker 3: and of course technological developments are all very relevant for Australia.

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Speaker 3: But that pure trade component was never very big. We

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Speaker 3: have a ten percent tariff, we were one of the

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Speaker 3: least tariff countries, and of course a lot of the

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Speaker 3: things that we sell to them, things like beef, that

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Speaker 3: we're always going to be very competitive with.

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Speaker 1: Okay, so let's go to China, then, our biggest trading partner.

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Speaker 1: Why do we talk about China so much?

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Speaker 3: Well, China is by far our biggest trading partner, and

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Speaker 3: our trade with them, you know, on an outgoing basis,

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Speaker 3: is very concentrating and a few things.

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Speaker 2: Iron ore.

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Speaker 3: Our exports cover the entirety of what we import from China.

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Speaker 3: Everything else we export to China is basically trade surplus.

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Speaker 3: We have a trade surplus with China.

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Speaker 2: But if you think.

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Speaker 3: About iron ore, a bit of coal and also university education,

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Speaker 3: those are big deal things in terms of our relationship

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Speaker 3: with China, and so it really matters how their economy

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Speaker 3: is going. The fact that they have reached peak steel

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Speaker 3: matters for us in terms of, you know, the scope

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Speaker 3: to further increase exports in that area, which we think

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Speaker 3: are absent.

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Speaker 2: So yeah, it's out there. Our biggest trading partner.

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Speaker 3: They're the second biggest economy in the world, maybe even

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Speaker 3: the biggest, and of course they're the you know, the

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Speaker 3: most of versified source of manufactured goods and our huge

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Speaker 3: source of manufacturing innovation. Now, so those things are all

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Speaker 3: really important to us.

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Speaker 1: I mean, what's that mean for Australia If we are

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Speaker 1: peak steel, does that mean Australia needs to be looking

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Speaker 1: elsewhere for iron or at least mean maybe Indonesia those

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Speaker 1: sorts of places, or should we actually be diverting and

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Speaker 1: thinking we should be selling other stuff to China.

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Speaker 3: Well, not necessarily to China, but we should be you know,

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Speaker 3: we will have to find our export growth from other things.

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Speaker 3: But the good news is we already have. So if

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Speaker 3: you look, if you look at our top four exports

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Speaker 3: iron ore, coal, natural gas, and university education, they all

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Speaker 3: ramped up a lot over the previous past twenty five

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Speaker 3: years and then kind of found a level in volumes terms.

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Speaker 3: So adjusting for price, they're all pretty much flat to

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Speaker 3: down down for coal but flat for the others. So

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Speaker 3: where's the export growth kind of come from. It's going

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Speaker 3: to come from other things. Well, just by way of

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Speaker 3: one example, we have an almost ten billion dollar, nine

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Speaker 3: billion dollar export industry we estimate in twenty twenty five

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Speaker 3: based on the first three quarters, but nine billion dollars

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Speaker 3: of export industry coming from zero ten years ago called

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Speaker 3: software licensing. So we actually have a really sizeable software

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Speaker 3: export industry. And if you think about Canvas and Atlasian

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Speaker 3: and wise Tech and a couple of others, you know

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Speaker 3: that basically does that Nobody planned for that, by the way,

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Speaker 3: So I think you know the way I would frame

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Speaker 3: it is, you know, Australia has you know, a smart,

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Speaker 3: pragmatic well educated English speaking workforce, and there's going to

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Speaker 3: be all of those sort of industries. It's not going

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Speaker 3: to be as big as iron ore, but the growth

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Speaker 3: will come from elsewhere. We've managed to achieve nine billion

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Speaker 3: dollars worth of growth in services exports just from software

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Speaker 3: licensing alone, let alone all the other service exports like management,

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Speaker 3: consulting and auditing services and engineering services.

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Speaker 2: You'd be surprised what's in the balance of payments.

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Speaker 1: I was going to go back to critical minerals there

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Speaker 1: and I there, but it's much more sexy all these

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Speaker 1: service sectors. I mean, that is a amazing how much

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Speaker 1: we education we kind of know about, but lots of

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Speaker 1: other stuff as well.

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Speaker 3: That's right, and I think, you know, it's been a

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Speaker 3: little bit under the radar. And you know, typically when

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Speaker 3: people think about what a straight is good at, we

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Speaker 3: think about our minerals, We think about our agricultural exports,

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Speaker 3: and they are all important, Like our meat exports are

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Speaker 3: very important. It's our single biggest export to the US,

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Speaker 3: for example. So you know, those things are all really

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Speaker 3: important because we have you know, those advantages as well.

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Speaker 3: But the growth will come from something other than iron ore,

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Speaker 3: and that's one area critical minerals. I think we will

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Speaker 3: do more in that, but it's actually quite small a

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Speaker 3: market relative to you know, possibilities and services.

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Speaker 1: Fantastic, Lucy, thank you very much for talking Fear and

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Speaker 1: Greed Summer Series.

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Speaker 2: Thanks very much, Sewan, It's always a pleasure.

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Speaker 1: That was Westpac Chief Economist Lucy Ellis. Don't forget to

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Speaker 1: hit follow on the podcast. I'm sure I on mat.

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Speaker 1: This is the Fear and Greed Summer Series, brought to

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Speaker 1: you by Westpac