Key Takeaways
- The U.S. economy is showing cracks, including $36 trillion in national debt, rising inflation, and overdependence on a few tech giants, which could destabilise global markets.
- Australia benefits from a strong U.S. dollar through higher export revenues, but rising import costs and global volatility are squeezing domestic industries.
- Growth stocks on the ASX are struggling due to rising bond yields and declining valuations, while resource earnings are expected to drop by 11.6% in 2025.
- Australia’s overreliance on mining and U.S. economic trends leaves it vulnerable to external shocks, particularly from slowing demand in China and potential U.S. market corrections.
- To remain resilient, Australia must diversify its economy, strengthen trade relationships beyond the U.S. and China, and invest in innovation and high-value industries.
The U.S. economy is not unbreakable—it could be living on borrowed time. For decades, we’ve been sold the idea that the United States is exceptional: stronger, smarter, and destined to thrive no matter what. But that story is wearing thin. Behind the headlines of low unemployment and steady job growth lies a growing list of cracks that are too big to ignore.
Yes, the job market looks great, with 256,000 new jobs added last December. Yes, unemployment is at historic lows. But the national debt has climbed past $36 trillion, inflation is out of control, and the stock market is dangerously reliant on just a few tech giants. This isn’t a picture of strength.
And for Australia, a nation deeply tied to U.S. economic trends, these vulnerabilities represent both opportunity and risk.
How America’s Fragility Impacts Australia
The so-called “Magnificent Seven” tech giants—Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta, and Tesla—dominate the S&P 500, making up over 31% of its total value. When a small group of companies holds so much weight, any trouble for them means trouble for the global economy.
Howard Marks, in his memo On Bubble Watch, warns that speculative behaviour and overconfidence are key drivers of market fragility. Markets driven by high valuations and the fear of missing out are particularly susceptible to sharp corrections, and the U.S. stock market shows these warning signs.
For Australia, this overconcentration creates a precarious situation. Many superannuation funds and investors rely on these tech giants for returns. If their inflated valuations collapse, Australia’s financial markets will feel the shock. The rising bond yields can lead to higher corporate borrowing costs, a reallocation of investments from equities to bonds, and downward pressure on the valuations of growth stocks, collectively contributing to a potential decline in the ASX’s performance.
Meanwhile, Australia’s mining boom is losing steam. Resource earnings are expected to drop by 11.6% in 2025—the third consecutive year of double-digit declines, as China, Australia’s largest trading partner, reduces demand for iron ore and coal. With so much of Australia’s economy tied to commodity exports, a global slowdown could spell trouble.
The Strong U.S. Dollar Is a Double-Edged Sword for Australia
The U.S. dollar is both a blessing and a curse for Australia. On the upside, the strong greenback has boosted export revenues. Commodities like coal and iron ore, priced in U.S. dollars, generate higher earnings for Australian miners. This has even led to rare projections of a budget surplus for the 2025 financial year.
But there’s a downside. A strong U.S. dollar raises the cost of imports for Australian businesses and consumers, squeezing profit margins and driving up prices. Industries that rely on foreign goods are particularly vulnerable, especially as tighter Federal Reserve policies create global financial volatility.
Growth stocks on the ASX, like WiseTech and Pro Medicus, are already feeling the strain. Higher bond yields in the U.S. are making it harder for these companies.
Australia’s Overreliance on Mining and the U.S.
For decades, mining has been the backbone of Australia’s economy. But overdependence on exporting raw materials comes with risks. As global demand slows, particularly from China, Australia is left exposed.
The U.S. economy’s troubles amplify these challenges. Tighter monetary policy and volatile financial markets reduce global demand for Australian exports, while rising borrowing costs put pressure on domestic industries. In short, Australia’s reliance on both the U.S. and commodities leaves it vulnerable to external shocks.
What Needs to Change for Australia
Australia must learn from the cracks in the U.S. economy. Here’s how:
- Diversify Trade Relationships. Strengthen partnerships with Asia and Europe to reduce overreliance on the U.S. and China.
- Invest in Innovation. Focus on industries like renewable energy, advanced manufacturing, and technology to create sustainable growth.
- Broaden Market Strength. Encourage investment in a wider range of sectors on the ASX, reducing exposure to mining and growth stocks alone.
- Prepare for Global Volatility. Build financial systems and policies that can weather external shocks from U.S. or global market downturns.
The Clock Is Ticking for Australia
Australia can no longer afford to rely on the U.S. exceptionalism or the fading mining boom. The cracks in the U.S. economy are undeniable—skyrocketing debt, speculative markets, and fragile foundations—and their ripple effects will reach every corner of the globe. For Australia, these are warnings.
What happens when the U.S. dollar falters? When global demand for resources dries up? When overvalued markets inevitably correct? These are not “if” questions—they are “when.”
References:
https://www.bls.gov/news.release/pdf/empsit.pdf
https://fiscaldata.treasury.gov/americas-finance-guide/national-debt/
https://www.cnbc.com/2024/07/01/how-magnificent-7-affects-sp-500-stock-market-concentration.html
https://www.brookfieldoaktree.com/sites/default/files/2025-01/on-bubble-watch.pdf
https://abcnews.go.com/Business/surging-bond-yields-finances/story?id=117617443
