He came, he saw, he tariffed.
There was never any doubt that Australia would face further Trump tariffs, and the president delivered with another 10% on our exports to the US.
This is not as much as some countries, but we are model traders, with a (zero tariff) free trade agreement with the US and a trade surplus in their favour.
We now face a world of heightened uncertainty. There is speculation that Trump is open to deals that will lower some of the reciprocal tariffs he just announced. There is also speculation of further tariffs on specific sectors. What does this mean for pharmaceuticals in Australia, for example?
The tariffs on China come on top of other recently announced levies. This also has flow-on effects for trading partners such as Australia. A slowdown in global trade and investment is a downside risk as global business digests possible changes to location and supply chains. The US could face higher costs (the tariff is paid by American consumers and downstream businesses) and a further fall in consumer sentiment and demand.
These are choppy waters for Australia. While issues like the cost of living dominate election narratives, the Trump ascendancy is now looming larger over the federal election. Questions abound – what about Australia’s grand geopolitical strategy; and which party leader is best placed to navigate the next few years?
At a recent meeting of the Australia-Canada Economic Leadership Forum, with 220 Canadians in the room, a constant theme was that Canada felt more vulnerable in dealing with the US because of the state of its economy and defence preparedness. Their dander is up as they contemplate how to change the policies of generations to deal with the first “America First” administration in our lifetime.
Keeping our heads down is not an option. But neither is shooting ourselves in the foot by economic retaliation or threatening the alliance and Aukus. Both party leaders have sensibly disavowed rash responses.
We must pivot to a stronger, more resilient economy and enhanced partnerships with like-minded democracies in the Indo-Pacific and beyond. Trump 2.0 is pulling out all the stops to make the US the world’s preferred investment destination. Countries are scrambling over how to compete in this new race for investment and talent.
We have exhausted the gains from the economic reforms of Hawke/Keating and Howard/Costello that created the modern Australian economy. A new suite of market-based, economy-wide reforms is necessary but may not be sufficient. Today’s geopolitical circumstances require strategic industry policies to develop national security businesses and sovereign capabilities.
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Both Trump and Biden have wrestled with how to address China’s non-reciprocal approach to trade and its challenge to US supremacy in critical and emerging tech. Washington has given up on traditional trade remedies in favour of more interventionist approaches, although each side of politics favours different instruments. Trump is replacing the Biden era policies of subsidised intervention, the Chips Act and the Inflation Reduction Act, with what he terms the “negative incentive” of higher tariffs – pay the tariff or produce in the US.
America is leading the way, but the Europeans are now redoubling their efforts. Outsourcing sovereign capabilities through globalisation boosts our long-term dependence on hostile state actors who would not hesitate to use that leverage.
While Australia lacks the scale of the US or the EU, we can double down on sovereign capabilities and lock in the benefits of changes to export controls that give us greater access to the defence markets in the US and UK.
The best remedy for global uncertainty remains greater economic strength and resilience at home. We may also see more diversification as our exporters pivot to new markets. Australia should accelerate new trade agreements with willing partners.