US President Donald Trump's protectionist policies could spell disaster for Australia, QIC chief economist Matthew Peter has warned. Credit:Carolyn Kaster Unemployment would rise to about 7 per cent, Dr Peter said, and the Australian dollar would fall to US60¢. In what Dr Peter described as a "horror story", Australia's GDP would also fall 1 per cent over four years. "We've done a fair bit of modelling on this, but we don't know exactly what he's going to do," he said. At the centre of Trump's protectionist policies, Dr Peter said, was a 45 per cent increase in cross-border tariffs on Chinese products and 30 per cent in Mexico.

Mr Peter: "We'd move from this safe haven type economy to, dare I say it, a banana republic." "Anything around that sort of measure, which was retaliated by China and Mexico, would be pretty damaging," he said. "In our simulation, we find that would reduce growth in the US over a four-year period by two percentage points. "For the economy, that's pretty bad stuff. "Inflation would probably go through the roof because of the higher tariffs and ... they would probably have to raise interest rates, which would raise the US dollar and worsen the situation."

A trade war between the United States and China would result in a 5 per cent fall in the two nations' GDP, Dr Peter said. "Australia is not immune, obviously, because even though it doesn't have very strong trade links anymore in terms of merchandise trade with the US – it's dominated by China – what we find there is we get about a 1 per cent fall in GDP over four years," he said. "That's not as bad as China and the US because the RBA is forced to cut rates to half a per cent, the dollar falls to about 60¢ and they're strong pushing effects for the Australian economy and that enables us to see through some of the worst parts of the trade shock. "But, nonetheless, you'd expect the unemployment rate to hit something like 7 per cent in that type of scenario, so it would be pretty bad news for us." Dr Peter said there would also be a loss of confidence in the Australian economy and investments.

"We'd move from this safe-haven type economy to, dare I say it, a banana republic," he said. "So that's the horror story, but I don't think that's going to happen. There's not going to be that type of shock." The likelihood that Mr Trump's actions would not match his campaign rhetoric provided some relief, Dr Peter told the luncheon at the Pullman Hotel, which focused on the first 100 days of the Trump presidency. "With the constraints we think Trump is going to face in terms of implementing any of this grandiose plan, we think it's going to be a little bit of a fizz," he said.