Australia, explained.
“Tariff” might be Trump’s favourite word but there there are a growing number of his Wall Street supporters suggesting that such large imposts may not be a fait accompli (Ian Maule/Getty Images)
Australia’s hopes of a modest economic impact from the Trump administration’s actions will require navigating the financial tensions at its heart.
Subscribe to The Informer for monthly expert analysis, and to Events for advance notice of visiting world leaders and distinguished guests.
You may unsubscribe from Lowy Institute newsletters at any time. For information on our privacy practices and how to unsubscribe, see our Privacy Policy.
Economic diplomacy: It’s populists vs plutocrats in Trump Take 2Economic diplomacy: It’s populists vs plutocrats in Trump Take 2
Treasurer Jim Chalmers says economic policy and foreign policy is now a team effort in the Albanese government, to the point that “they’re almost indistinguishable”.
Chalmers’ speech to the Australian Institute of International Affairs annual outlook conference this week arguably marked the rhetorical high point of the government’s embrace of statecraft joining up these policy arms, which has flowed through development aid, renewable energy, and defence policy shifts, among others.
And the latest example of this is set to be government assistance to the ANZ Bank to keep nine outlets in Pacific island nations open as part of the push back against China’s growing presence in the region.
This will mean the country’s seventh largest listed company will be joining the 13th largest in Telstra (for the Digicel Pacific purchase) doing well-compensated national service in the creeping economic integration of the Pacific nations with Australia. As we have asked here before, will this eventually go all the way to extending Australia’s deposit guarantee into a region facing various money laundering and prudential challenges?
As Chalmers puts it this is “as good an example as any of the contribution we can make in economic portfolios to our foreign policy efforts.”
Prime Minister Anthony Albanese has tried to play down suggestions his social media ban for children might attract a backlash from the tech sector free speech advocates in the Trump administration like Musk.
But the speech was really about talking up how Team Australia thinks it is ready to deal with the arrival of Team Trump on the international economic policy scene. It extended right down to the Treasurer doing his own bit to shore up the fortunes of Washington ambassador (and former prime minister) Kevin Rudd. “We are well placed and well prepared. Like any diligent country, Australia was ready for either outcome,” Chalmers declared just ahead of some of the more surprising Trump personnel choices this week.
What was notable, given Trump despises global economic institutions, was how Chalmers still talked up his engagement with those very same agencies over the past two years because “multilateral institutions are more important now than ever.” Chalmers has been to 23 multilateral meetings since taking office, including 11 discussions with heads of those bodies. It will be interesting to see how well that position stands up as Australian ministers meet their new American counterparts.
With a clean sweep of the presidency, the popular vote, the Senate and the House of Representatives along with intensive preparation, the incoming administration appears to have plenty of scope to quickly implement new policies.
But such a big tent will still leave a lot of room for potential differences over what the substantial victory means for international economic relations approaches. Those tensions seem likely to reflect the divide between the populist Make American Great Again supporters and the plutocratic business tycoons who populate Trump’s ecosystem. The divide was somewhat reflected in Republican Senators choosing a more traditional leader this week in John Thune over the more populist favoured Rick Scott.
“Tariff” might be Trump’s favourite word underpinning his threat to apply a 60 per cent impost on Chinese imports and 10-20 per cent on everyone else. This was one of his strongest election themes, despite the fact that the higher priced imports would have a greater impact on his poorest supporters.
And there are a growing number of his Wall Street supporters suggesting that such large imposts may not be a fait accompli, no doubt concerned that tariff driven inflation might prompt tighter interest rates and hurt the booming stock market. For example, Trump enthusiast and fund manager Cathie Wood says the stock market players are viewing the tariff threat as a “negotiating tactic”.
Indeed, American Enterprise Institute economist Michael Strain writes in the Financial Times “protectionism has not won the intellectual argument, and the business community – a powerful force in the GOP (Republican) coalition that will now reassert itself – favours free trade.” And while Trump might love the word tariff, his career suggests he would rather claim a big deal with China over trade.
The Albanese government is quickly taking up former prime minister Malcolm Turnbull’s advice to talk up the United States trade surplus with Australia to avoid any direct tariffs. But that won’t protect Australia from any economic turbulence in China from the larger tariffs.
Vance has been associated with favouring tax cuts for small businesses rather than big business in the past.
Then there’s big technology, where some populist wing members including, at times, Vice President elect J.D. Vance, favour a crackdown on social media giants and Trump himself has sympathised with breaking up Google in the past. But with X owner Elon Musk now officially on the inside of the administration, the tech sector billionaires are likely to feel more protected from any action, and are now threatening Trump administration retaliation against any European Union restrictions.
Prime Minister Anthony Albanese has also tried to play down suggestions his own social media ban for children might attract a backlash from the tech sector free speech advocates in the Trump administration like Musk.
Even on tax, where there are emerging concerns the Trump victory might undermine the Organisation for Economic Cooperation and Development progress towards a guaranteed minimum company tax, there are some fissures between populists and Wall Street types about whether big companies really deserve another tax cut.
Vance has been associated with favouring tax cuts for small businesses rather than big business in the past. And more intriguingly hedge fund manager and potential Treasury secretary Scott Bessent has suggested that reducing regulation was more important than tax cutting for large companies because they had already done better than the “Main Street” Trump supporters.
With the new Trump administration likely to withdraw again from the United Nations climate change framework and foster more oil production, it will also be interesting to see how Musk defends Tesla’s electric vehicles.
As the finger pointing continues over how the outgoing Biden administration lost the election, it is worth noting that its once much vaunted foreign policy for the middle-class approach was highly attuned to looking after the low income workers who seem to have flocked to Trump.
From retaining Trump’s original China tariffs, to the big spending and protectionist Inflation Reduction Act (IRA) at the heart of Bidenomics, to joining union picket lines, Biden was highly focused on these voters.
And anti-trade forces, including unions, successfully prevented the Democrat government from embarking on any significant new trade agreements, leaving the Indo-Pacific Economic Framework constantly stranded among Asia’s network of more substantial trade deals. So, the loss should be attributed to other factors than a lack of trade protectionist policy.
Fortunately, despite having a stronger free trade sceptic union base than the Democrats, the Albanese government has maintained more of a halfway house with a modest version of the protectionist IRA in the “Future Made in Australia policy” and strong defence of free trade.
Chalmers underlined this in his speech claiming that trade accounted for about half Australia’s GDP compared with a quarter for the United States, and China accounted for a quarter of Australian trade compared with ten per cent for the United States. And the Department of Foreign Affairs and Trade has come to the party again this week with a new report emphasising how trade related jobs are higher paid.
This trade positivity (and dependence) in Australia is a notable difference between the two countries as the Albanese government faces an election with some of the same anti-incumbent overtones of the remarkable Trump victory.
About the author
Greg Earl
Greg Earl was the deputy editor, opinion editor, national affairs editor and Asia Pacific editor of The Australian Financial Review.
The most-pressing world events explained by Lowy Institute experts and global contributors, in your inbox, every Thursday.
You may unsubscribe from The Interpreter at any time. For information on our privacy practices and how to unsubscribe, see our Privacy Policy.
