Source : THE AGE NEWS
Donald Trump doesn’t like taking no for an answer. So really it comes as no surprise that, within minutes of three American judges blocking his tariffs from taking effect this week, he hit back with an appeal and questioned their authority.
It’s reassuring that the Court of International Trade took a stand. The judges stopped short of passing judgment on the effectiveness or wisdom of tariffs, but ruled the president couldn’t just use emergency powers in an (apparent) bid to protect the US economy. That power, it reminded Trump, actually rests with the Congress. The situation remains fluid, though; overnight a federal appeals court agreed to temporarily preserve the tariffs while the appeal is urgently held.
US President Donald Trump is used to getting his own way.Credit: Bloomberg
Nonetheless it’s probably a bit awkward for Trump, given his No.1 rival – Chinese President Xi Jinping – won’t have the same constraints on his power. Whether Xi pushes forward with tariffs on the US is unclear (he also has a lot to lose from imposing tariffs) but he may want to seize the opportunity to rub the mud in Trump’s face at a time when the US president can’t fight back.
But whether or not the court’s finding withstands the appeal, Trump has (and will continue to) hurt businesses and customers worldwide – including here in Australia. Why? Because some of the damage has already been done.
In a speech at an Australian Business Economists’ event in Sydney this week, Treasury Secretary Dr Steven Kennedy assessed some of the rubble.
First, he says markets have experienced unusually high levels of volatility. Investors have faced whiplash as Trump followed up his extensive list of tariffs on countries (including tiny islands – some inhabited only by penguins) with a 90-day pause on tariffs, before escalating his trade war with China.
While market movements may not matter hugely on their own, they’re a sign of how rattled people are, and how uncertain the future is. Uncertainty deters business owners from investing and customers from buying because most people are not adrenaline junkies who want to sink money into things during periods of turbulence.
That slows down economic growth – and it can take ages for people to feel like it’s safe enough to spend.
But there’s also a chance Trump’s tariffs will be waved through on appeal, further worsening worldwide economic growth. As Kennedy points out, the International Monetary Fund (IMF) recently slashed its forecast for global economic growth from 3.3 per cent to 2.8 per cent this year.
While its forecasts for the Chinese and US economies both took an especially large hit (the tariff escalation is most intense between these two, after all), it’s actually China, not the US, that will have a bigger knock-on effect on other countries if the trade war continues.
“Outside of the years affected by COVID-19, China has contributed more to world growth than the G7 since 2006, and more than the US since 2001,” Kennedy says.
Trump’s trade wars have already hurt our economy. Credit: Louie Douvis
Australia, which does a third of its trade with China, would, of course, be especially vulnerable. Less growth in China, and thus less demand for Australia’s exports (things such as iron ore, beef and coal) from our biggest trading partner, would weaken domestic growth. That’s on top of the dampening effect of uncertainty on Australian household spending and business investment spending.
A weaker Australian economy would mean less hiring by businesses, fewer Australians holding down jobs, and slower wage growth.
One glimmer of hope is that price increases would probably slow a little. Wouldn’t tariffs wreak havoc on supply chains and push up inflation? Well, probably. But Kennedy says that’s likely to be offset by more low-cost output from China making its way to us as its trade is redirected from the US.
While Australia is caught in the crosshairs of a fight it didn’t start – or want to participate in – we don’t have to let Trump’s unpredictability take our economy off track.
Since Australia trades very little with the US, Trump’s tariffs on Australia – if they resumed – wouldn’t be a huge worry. “The indirect impact [of tariffs] is nearly four times as large as the direct effect,” Kennedy says.
So, what can we do? Well, Australia’s decision not to hit back with our own tariffs is a good start. There’s very little point in stoking Trump’s ire when we have little to gain (and plenty to lose) from imposing tariffs. The main effect would be to make American imports costlier for Australians, which would just end up hurting our hip pocket.
Another thing we can do is make the most of the chaos by positioning ourselves as a safe, stable and attractive place to invest in as people pull their money out of the US. A “pick me” strategy? Perhaps, but it’s a good idea.
The Trump administration has made it clear that it wants to reshape the economic order and kick China down a few rungs. US imports from China have fallen steadily from their peak of about one-fifth of total imports in 2017 during Trump’s first term to just over one-tenth in 2024.
But Trump has also made it obvious he doesn’t care who he hurts in doing so.
Kennedy says Australians will have to adjust to this reality through policy changes.
While the US seems to be raising its walls (after failing to build a physical one on its southern border some years ago) and trying to become more self-reliant, Kennedy says following the same strategy is a mistake for smaller countries including Australia that benefit greatly from trade.
“It is not in our self-interest to respond by also raising barriers,” he says. Instead, we should be going the opposite way: removing barriers to trade, and turning to a wider array of trade partners.
Kennedy points to the Australian government’s renewed negotiations with the European Union on a free trade agreement, and efforts to expand existing compacts such as the Progressive Agreement for Trans-Pacific Partnership – both of which make it easier to trade.
Striking new trade agreements and looking to our neighbours, too, in countries such as Indonesia and India will be hugely beneficial, especially as these countries continue to grow and themselves look for reliable trade partners outside the US.
As Kennedy says, we’re facing more than the usual degree of uncertainty, but it may be time to stop saying that and accept that, for the foreseeable future, the world will be characterised by it. While Australia is caught in the crosshairs of a fight it didn’t start – or want to participate in – we don’t have to let Trump’s unpredictability take our economy off track.
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