Donald Trump’s victory in the 2024 U.S. election is expected to send shockwaves through the global economy, and Australia is likely to feel the impact.
In his second term, Trump has outlined an economic agenda focused on cutting taxes, increasing tariffs, and pulling back from global trade agreements. While these policies might provide short-term economic boosts, they raise serious concerns about longer-term consequences, including inflation, rising unemployment, lower productivity, and growing national debt.
According to Susan Stone, Chair of Economics at the University of South Australia, Australia cannot afford to ignore the effects of Trump’s policies. “Countries, including Australia, won’t be able to look away and simply hope for the best. The world must adapt to the return of Trump,” she cautions.
On the other hand, Matthew Kroenig, vice president of the Atlantic Council, remains more optimistic. He believes Trump’s policies will emphasize fair and reciprocal trade, address China’s unfair trading practices, and unlock the U.S.’s domestic energy potential. “Trump’s focus will be on ‘America first, but not alone,’ ensuring that U.S. global engagement benefits both America and the broader free world,” he argues.
While U.S. stock markets saw an immediate surge following the election, with tech moguls like Elon Musk and Jeff Bezos seeing their fortunes grow, the broader global economy faces a different story. Trump’s “Make America Great Again” (MAGA) Republicans are pushing to withdraw from the World Trade Organization (WTO), a move that could disrupt the global trading system.
Stone warns that this withdrawal could harm global trade, undoing years of agreements aimed at promoting freer trade. For a small, open economy like Australia, this could result in price hikes across the board, from goods like cars to business services.
Tariff Wars
A key concern is the potential escalation of tariffs. Trump has previously claimed that tariffs are essential for bringing jobs back to America and punishing countries that exploit cheap labor. But his second-term proposals go much further than before, including the possibility of imposing tariffs as high as 60% on Chinese goods and up to 20% on imports from other countries, particularly those in the European Union.
Geoeconomics expert Josh Lipsky of the Atlantic Council says a tit-for-tat trade war is likely to ensue, leading to higher inflation both in the U.S. and globally. While Trump’s economic team argues that his first term didn’t lead to significant inflation, the scale of the proposed tariffs this time around is far greater.
The European Central Bank and the Bank of France have already expressed concern about the rise of protectionism, and U.S. investment bank Goldman Sachs warns that higher tariffs will increase the cost of goods and make it harder for U.S. companies to export.
Although these policies will take time to fully unfold, the effects are expected to be felt across the global economy, including Australia.
The Taxing Impact
Trump’s promised tax cuts are another major area of concern. His proposal to reduce the U.S. corporate tax rate from 21% to 15% is aimed at making American businesses more competitive. This may encourage U.S.-based multinationals to repatriate operations from abroad, including Australia, which has a higher corporate tax rate of 30% (though many businesses pay far less).
However, if the proposed tariffs undermine the benefits of these tax cuts, the overall economic impact could be negative. The combination of tax cuts and increased government spending is projected to add up to A$11.8 trillion to the U.S. federal deficit, leading to higher borrowing costs in the U.S. and globally.
Dr. Stone warns that this could drive up interest rates, making it more expensive for countries like Australia to borrow. At the same time, the downturn in Australia’s key exports, such as iron ore, due to China’s slowing demand and Trump’s tariffs, is likely to reduce the country’s budget surplus. Australia may be forced to increase borrowing to sustain its economy.
Australia’s Economic Outlook
There may be some positives for Australia, such as opportunities to export more goods like wheat and education services to markets that might turn away from U.S. products due to retaliatory tariffs. However, Stone notes that these gains may not be enough to offset the economic instability triggered by Trump’s trade policies.
A key concern for Australia, as a middle power both economically and militarily, is the future health of the World Trade Organization (WTO), which has been instrumental in maintaining a stable and rules-based international trade system. As the U.S. pulls back from multilateral agreements, Australia may find itself facing greater economic uncertainty.
In conclusion, while some sectors in Australia might benefit from a reshaped global trade environment, the broader economic fallout from Trump’s policies is likely to create significant challenges. With rising tariffs, tax cuts, and an unpredictable global trade landscape, Australia will have to navigate a complex and potentially volatile economic future.