The last thing a political party desires during a heated election season is a global economic meltdown. However, this week, this became an increasingly looming reality as Donald Trump, the unpredictable US President, escalated his controversial trade war, sending international markets into a downward spiral. Lately, Anthony Albanese and his top advisors face relentless inquiries about Australia’s standing with its most influential ally. The primary goal for them is to move the conversation away from the unsuccessful exemption from the 10% tariffs and towards robust foreign policy and economic administration.
The government knows full well that the main concern is not the tariff itself, but the rapid expansion of the international feud, which has witnessed the US and China elevate their respective tariffs to a whopping 145% and 84%. For now, Albanese is steadfast on the stance that Washington’s uncertain policymaking behaviour accentuates the importance of a measured and unified approach. Country’s cenior Finance Minister, Jim Chalmers, has rallied the nation’s premier financial authorities to showcase a readiness that also boost his election strategy.
Chalmers stated this week, ‘While we meticulously and responsibly navigate this global instability, Peter Dutton is irresponsibly discussing the possibility of economic downturn to distract from his own shortcomings and the lack of clear, cost-effective policies during his faltering campaign’. The prime minister stressed the erratic nature of the US administration’s stance. He told journalists on Thursday, ‘We need to proceed cautiously’, discouraging a knee-jerk reaction.
The current US tariffs pose not only economic issues but also strategic dilemmas. One high-ranking government official opined that this issue can be seen as Australia being closely scrutinised in terms of its willingness to defend its sovereignty. According to this official, Trump is currently testing the waters for vulnerabilities, and Australia’s response now could influence its international reputation for years to come.
Australia’s relevance in international matters and the implied potential clout is being talked up in Capitol Hill circles. An official from the Department of Foreign Affairs and Trade highlighted Washington’s increasing attention to Australia and its significance in various spheres. The official emphasised that being under Trump’s scrutiny could bring risks so, they advised, great care must be taken with public pronouncements.
As the parliament is adjourned and the government operates as a caretaker, Australia has chosen to pause direct discussions until after the election on May 3. Currently, government ministers are devising a catalogue of alternative proposals to potentially be used as negotiation tools post-election, should Labor prevail. They are focusing particularly on the dual strategy of consistent diplomatic interactions abroad and firm economic reassurances back home.
Regarding the domestic scenario, Treasurer Jim Chalmers has been actively engaged with the heads of the country’s largest banks, top superannuation funds, high-level financial authorities, and significant business leaders. These interactions highlight the country’s readiness to face potential economic risks that could lead to a global recession. Although the direct impact of the tariffs on Australia is not significant, according to renowned economist Dr. Vladimir Tyazhelnikov, the systemic threat is far more considerable.
If the trade war triggers economic instability in China or Europe, our commodity exports could be heavily affected, warned Dr. Tyazhelnikov. As Trump announced aggressive tariffs amid international astonishment, the prime minister introduced a five-pronged plan to bolster Australia’s position in global supply chains. This plan includes establishing a strategic reserve of critical minerals and a $50 million relief package aimed particularly at supporting our beef industry.
Additional measures include tightened anti-dumping safeguards, new procurement policies promoting Australian-produced goods, and a general shift towards self-sufficiency. Concessions on aspects such as the Pharmaceutical Benefits Scheme, cited by the US as disadvantageous to its pharmaceutical industry, and biosecurity concerns, being the basis for Australia’s restrictions on US beef imports, have been firmly ruled out by Albanese, Trade Minister Don Farrell, and Minister for Foreign Affairs Penny Wong.
Dr. Daniel Kiely, senior research fellow at the Bankwest Curtin Economics Centre, commended the targeted supportive actions while also stressing the importance of avoiding hasty responses. He pointed out that retaliatory tariffs on Australian households would only make matters worse and our goal should be to maintain open trade. Kiely also emphasized the importance of the support package for SMEs.
In terms of Trump’s actions on tariffs, what makes them so destabilizing is not only the tariffs per se but also the global views that they symbolize. Professor Wesley Widmaier, an international relations expert at the Australian National University, believes Trump is the first U.S. president since Ronald Reagan to put economic transformation over immediate growth, marking a shift to a more conservative, rather than growth-oriented, economy.
Consequently, Australia’s susceptibility goes beyond the material aspects. Widmaier suggests that the tension between aligning with a powerful ally and maintaining global norms is being significantly altered by Trump’s resurfacing. Thus, Prime Minister Albanese’s remark that the US’s imposition of a 10% tariff on Australian goods is not a friendly act may indicate a broader shift in Australia’s policies.
Over the last decade, Australia has increasingly engaged with India, the UK, the EU, and countries in the Indo-Pacific region. Beef exports to the UK have increased over 400% since the agreement went into effect in 2023, while exports of oats, citrus, and timber to India have soared, increasing bilateral trade by 120% yearly. While diversification tactics have helped, the officials believe that the next stage requires further integration, including mutual recognition of standards and significant investment in freight and supply chains.
Even the most excellent diplomacy efforts won’t support Australian businesses reliant on the US market unless the businesses adapt to the changing circumstances. Despite having an extensive network of free trade agreements, many firms find them confusing and daunting due to overlapping rules and extensive varied paperwork. The ACCI has called for comprehensive and accessible trade agreements, which are especially needed during a crisis. Therefore, Canberra’s response to Trump’s tariffs must involve domestic changes that help SMEs enter international markets more straightforwardly and quickly. The next test of Australia’s economic resilience won’t be measured in tariff rates – but rather in how swiftly and confidently it pivots when the next economic shockwave arrives.
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