While Kamala Harris has restored some hope for Democrats in November, the likelihood of a Trump presidency still remains very strong. And if that happens, Australia may find itself more damaged than any other major country.
Seven years ago during Trump’s first term, Rabobank economist Michael Every gave a presentation at a conference in Canberra that freaked the audience out. He investigated how bad things could get if Trump began a serious trade war. The worst case did not eventuate, but like a company’s bad second product, a second Trump presidency looks likely to send us down a dark path that we had avoided in his first attempt.
Before we get to the economy, we should note some other important issues. Last Sunday was the hottest day on record for the planet. It came off the back of June being the hottest June on record – making it 13 months in a row of records being set:
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So quickly is the world warming that what used to be considered hot now looks positively chilly:
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The 12 months to June 2010 were a record 1C above the 1880-1909 average – it hasn’t been that cool now for nearly a decade.
A Trump presidency would almost certainly ensure this keeps rising. During his deranged Republican National Convention speech, one of his biggest cheers came when he used the old line of “drill, baby, drill” (a line the Albanese government agrees with, given it keeps opening up new gas fields). So forget emissions reductions or global agreements while he is in power.
Then of course we have defence.
The Albanese government for no logical reason has strapped itself into Scott Morrison’s $368bn suicide vest, also known as Aukus. Spending that much money to annoy our non-English speaking neighbours and thus make Australia less safe while we wait for nuclear submarines that will never arrive (much like Dutton’s nuclear power plants) is bad enough. Add in a Trump foreign policy, and Anthony Albanese should be telling the defence minister right now to get us out of this horror show.
Of course, while things might get bad for Australia, given Trump has said he will act as a dictator on day one, will probably approve an abortion ban and be empowered by the supreme court to undertake whatever illegal actions he feels like, we do need to keep some perspective for how bad things will be for those in America itself.
However, a Trump presidency would have a pretty dire economic impact on Australia.
The direct hit would be a 10% tariff on all exports to the US.
Trump’s love of tariffs seems linked to his former economic adviser Peter Navarro’s belief that imports make the economy smaller. While imports do technically reduce GDP, that’s only done to avoid double counting. Every import we buy is something we consume and so if we didn’t subtract imports from GDP we would count things twice, first as an import and then as a consumption item (or investment if they are capital goods).
But Trump has got it into his brain that reducing imports makes the economy stronger, thus reducing imports via a tariff would make America richer – even though everyone would instantaneously have to pay 10% more for every imported good.
This of course would hurt all nations that export to the US, but luckily, we are not all that reliant on the US as an export destination any more:
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As we all know, most of our exports go to China.
But this is where things start to get dicey for us. Because while Trump wants to put a 10% tariff on all imports, he wants a tariff of 60% for those from China.
That would be pretty destructive to a Chinese economy that is already struggling. China would no doubt respond in kind, and most other nations would probably get in on the act. At this point, Michael Every’s nightmare scenario of a trade war (and possible real war) would start to play out.
But even if the situation remains purely economic rather than military, a report from the OECD in May found that Australia’s economy would be among the ones to suffer the most.
The report found that a 10% reduction of trade across all sectors between the OECD and the major non-OECD countries (which include China and India) would see Australia’s GDP fall by 1.2%. That was second-worst behind South Korea.
Australia would suffer worse than any other nation in mining, agriculture, and metals and metal products, and third-worst for oil and gas extraction – only behind Russia and Brazil:
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So, not good.
And remember this estimate of a 1.2% drop in GDP comes when our economy is already shrinking when we exclude population growth. It also comes at a time when the ANZ has suggested unemployment could rise above 5% by the end of next year.
Earlier this year I noted that unemployment was rising at a rate that was close to triggering what is known as the “Sahm rule” of recessions. In March and April things steadied a bit, but the June 4.1% unemployment rate puts us on the brink of breaking the barrier that US economist Claudia Sahm argues is consistent with recessions: a 0.5 percentage point rise in unemployment over 12 months:
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So no, a Trump presidency would not be good for Australia should he carry through with his tariff plan. A recession gets much more likely.
Unfortunately, bad as that would be, given the dire impact of climate change and the risks that a breakdown in America’s democratic institutions would pose for our own security, the worst news is a recession might be the least of our problems.
Greg Jericho is a Guardian columnist and policy director at the Centre for Future Work
