Trump imposing tariffs on Australia was perhaps inevitable. Trump 2.0 is not the Trump 1.0 who negotiated free trade agreements with the Canadians and the Mexicans which he is now tearing up, so it would be naive to think he would renew the exemption for Australian trade he granted in his first term.
It’s still possible we might get a reprieve as his tariff moves appear mercurial and are not based on trade alone but on strategic or tactical advantages he can get in return for his threats to impose tariffs.
We don’t know what the Albanese government was offering, but like the Ukraine, we have substantial rare earth deposits – perhaps there is a trade to be done there.
Certainly, the next Federal Budget needs to realistically lift defence spending to 3 per cent in the near term, not in the far-distant future beyond the forward estimates.
The government also needs to be ruthless in its diplomacy, which should include recalling Kevin Rudd as Ambassador. Not only has he insulted Trump in the past (not a smart strategy as Volodomir Zelenskyy could tell him), but his shambolic two terms as Prime Minister suggest he is not the right person to be negotiating with the Americans.
Trump’s tariffs are about two wars. The cold war with China, meant to preempt a hot third world war, and the hot war between the Republicans and the Democrats.
One aim of his tariffs is to re-shore manufacturing in the US so that it has the logistical strength to match China. The Allies won the second world war because America was the manufacturing hub of the world. That mantle has shifted to China.
Without manufacturing strength the USA cannot win a cold war.
Another aim is to reward key constituencies that returned him to power. He’s more concerned about steelworkers in Pittsburgh than in Whyalla because they deny the Democrats a domestic victory.
He also seems to think that tariffs are a good way to raise taxes. There are some good economic arguments in favour of that, as long as the tariffs are uniform, but no country has substantially financed itself on import duties for over 100 years. That will become apparent, and I suspect that aspect of the tariffs will be quietly shelved.
It would be foolish for Australia to apply reciprocal tariffs. We are a small trade-exposed economy where 46 per cent of our GDP is exports and imports whereas the US is the largest economy in the world and has a much smaller trade exposure with only 25 per cent of its GDP involved in trade.
However, it is also clear that the whole world is going on a war footing, and we need to gear up to meet it. The US is pivoting to the Indo-Pacific, and we are a vital part of the alliance, but we are going to need to do much more in the future than send a detachment of 2,000 mostly SAS troops to join the Americans as we have managed to do in the more recent conflicts since Vietnam like the second Iraq War.
Much of Trump’s actions are performative – meant to invoke a reaction. When he gets the appropriate reactions I suspect things will quieten down and relations will normalise. By that time the whole world will be working on a war economy basis.
