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Trump’s tariffs up-end world economic order
Updated 1:46 AM March 08, 2025
When the stockmarket is buoyant, Donald Trump likes to claim it is a sign of his policy success. After the Dow Jones Industrial Average plummeted 650 points on Monday following the President’s announcement that he was hitting US trade treaty partners Mexico and Canada with 25 per cent tariffs, it was clear that turmoil would be part of his promised “golden age” – in the US, for economic allies including Australia and for potential adversaries such as China. Australian investors are being affected, too, with local markets jittery.
After overturning the post-World War II strategic order that served the free world well for 80 years, the Trump regime seems intent on embracing 17th-century mercantilism, in which European nations sought to build wealth through favourable trade balances. That regressive ideology ignores the practical advantages of freer trading, achieved through decades of painstaking international negotiations. It also ignores the fact economic and strategic uncertainty fosters bear markets.
We can only assume, however, that some of the absurd statements coming out of Beijing and Washington about fighting to the end in a trade war, or any other war, are hot air. Likewise White House press secretary Karoline Leavitt’s comment that Mr Trump “felt strongly” that it would be beneficial for Canada to become part of the US. “They wouldn’t be paying for these tariffs,” she said, suggesting the idea of national sovereignty had gone by the board in some spheres.
Aside from populist “bring jobs home” rhetoric, Mr Trump’s motivation, Adam Creighton writes, is revenue raising to offset the $US2 trillion ($3.1 trillion) in annual fiscal deficits Washington has recorded for years. But to the detriment of US consumers, business and the economy, the tariff war will not be one way. And it will come at a high price. Cost-of-living pressures were a key issue at the 2024 US election but economists warn that sweeping tariffs on American imports are likely to increase inflation, not reduce it, in the near term and could slow down growth.
As a trade-exposed economy, Australia also has a lot at stake, Jim Chalmers said this week. “We’re already in one way or another impacted by the substantial slowing in the Chinese economy,” the federal Treasurer told the ABC. “And what we’re seeing around the world risks slower global growth, it risks higher global inflation, and that’s why it’s of concern to us.”
Despite the Australia-US free trade agreement in place since 2005 and Australia making a good case, time is running out for the Albanese government to secure exemptions before US tariffs on Australian steel and aluminium are imposed next week. Australia’s direct exposure to US tariffs levied on our exports is limited. The greater risk for the national economy, Reserve Bank deputy governor Andrew Hauser said this week, would occur if US tariffs on third countries triggered a global trade war that impaired our trade and financial links more broadly: “As Australia’s long history has shown, we thrive when trade, labour and assets flow freely in the global economy, but we suffer when countries turn inward.”
The Trump team is especially focused on China’s $US295bn trade surplus with the US, the widest of any US trading partner. The “America first” policy calls for dismantling the norms set up by the World Trade Organisation since 1995, under which China has been able to flood the world with cheap exports while limiting access to its own markets. The world’s two largest economies are locked in tit-for-tat economic hostilities. On Tuesday, after Mr Trump raised tariffs on Chinese imports by a further 10 per cent, China responded with 10 to 15 per cent tariffs on US agricultural exports such as beef, wheat, corn and soybeans. That could open opportunities for Australian exporters, though experience of recent years shows our interest is best served by a diversity of markets.
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Sadly because of our size and open trading positioning we could be hurt pretty badly if Trump pushes on with his economic plans. Frankly thinking he will be kind to us as he beats up on the rest of the world is a fiction. We are in the firing line, I reckon, just as much as Europe, the UK Asia and so on!
Just wait and see how all this plays out! Badly I fear.....
David.
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