Trump’s trade war: CreditorWatch warns tariff fallout may add to Aussie business closures

About 30,000 Australian businesses have defaulted on tax debts larger than $100,000, and the looming storm of US President Donald Trump’s trade war will likely push more over the edge.

The figure has surged from near-zero in September 2023 as the Australian Taxation Office ditched pandemic-era clemency and ramped up pursuit of businesses with unpaid bills.

Analysis by credit risk experts CreditorWatch warns the growing pile of tax troubles has become a major cause of insolvencies.

Cost-of-living pressure and slowing consumer spending has also heaped pressure across the economy. Hospitality fared worst with almost one-in-ten food and beverage businesses closing doors in the past year.

Rising costs including rents, wages, insurance and interest rates were adding to the squeeze, CreditorWatch said.

Western Sydney is ground zero for the pain in the year ahead. The suburbs Bankstown, Auburn, Canterbury and Fairfield were expected to be hardest hit with the highest forecast default rate.

But despite the bleak numbers and a sharp rise in companies going under since COVID-19, the share of businesses sinking remains below the average of the past quarter century.

CreditorWatch chief economist Ivan Colhoun warned the growing trade war would add pressure, which would be relieved if the Reserve Bank cuts rates at the upcoming May meeting.

Mr Colhoun said the overall impact from cost pressure, slow demand and Trump-driven uncertainty would keep defaults and insolvencies elevated in months ahead.

Financial markets were smashed after Mr Trump’s huge tax hikes on 2 April with investors worrying the policies would force up inflation and drive down productivity. The President has broadly watered down his proposals since while amping up the China fight.

“President Trump’s tariff changes are already having significant effects on financial markets, with significant volatility in share prices and the Australian dollar,” Mr Colhoun said

“All of the above are immediately damaging to consumer and business confidence and to the extent these uncertainties cause either consumers or businesses to delay purchases, hiring or investment decisions, the impact is a slowdown in economic activity, which will pressure weaker businesses.”

Also on Monday, AMP chief economist Shane Oliver talked up Australia’s resilience in the face of a potential slowdown.

Mr Oliver said the US would be most at risk because “it has threatened virtually all of its trade whereas other countries are only seeing their trade with the US impacted”.

He said the RBA had plenty of scope to cut interest rates and the Australian dollar would help absorb major shocks, while political big-spending in the Federal Election would add to demand.

“It’s clear that the Administration is getting nervous in the face of the backlash from US businesses and consumers,” he said.

The world’s biggest economy would also be losing its safe haven status as investors take out their cash.

“Trump looks to be getting a bit “yippy, afraid” (his words) and is maybe slowly pivoting towards negotiation,” Mr Oliver said.

“The trouble is that China is showing no signs of being the first to seek a start to negotiations, and sensing signs of weakness, other countries may not give away as much in any negotiations.”