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Breaking with the US will be painful for Australia in many ways – but it’s inevitable

John Quiggin14 Comments

My latest in The Guardian

Donald Trump’s announcement of a “Liberation Day”, involving the imposition of tariffs on almost every country in the world, is one of a series of measures which call for an urgent reorientation of Australia’s economic and foreign policy. It is, in effect, a commitment to remove the United States from the global economy, which is seen by Trump as unfair and exploitative of Americans.

The 10% tariff imposed on Australian exports is not of great concern in itself. The US is only our fifth-largest export market and would be ranked even lower by measures that aggregated the EU and Asean trading blocs. Moreover, the inevitable retaliation by other countries against US exports, particularly in agriculture, will remove a major competitor for Australian exports.

There will be much bigger effects from further rounds of escalation. In Trump’s first term, when his presidency was seen as an aberration, EU retaliation was limited to symbolic measures directed at Trump supporters, such as tariffs on Kentucky bourbon. These have been threatened again. But now it is America rather than Trump alone that is seen as an enemy by Europeans, a sentiment increasingly reciprocated by Trump’s Republican supporters.

And with Trump now announcing plans for a third term (and implicitly a presidency for life), the idea of waiting him out has ceased to be meaningful. Instead, the EU is looking at invoking its anti-coercion mechanism, initially developed in response to China’s ill-fated experiment in “wolf warrior” trade policy. That would hit the US where it hurts, in digital and financial services, leading to yet further retaliation.

American withdrawal from the global economy goes far beyond tariff policy. The US has withdrawn from a wide range of international organisations and treaties, abandoned international development aid and cancelled scientific research funding for joint projects in Australia and other countries. The World Bank, the International Monetary Fund and even the United Nations could meet the same fate. In any case, the continued location of these bodies in the US seems increasingly untenable, as the country slides from semi-democracy into autocracy.

Meanwhile, the Trump administration’s domestic policies, including the assault on universities and the rejection of medical science, are setting a course for long-term economic decline. Whereas the US has traditionally attracted the best and brightest researchers from around the world, the direction is now reversing. Although the idea of emigration is an illusion for most Americans, scientists fleeing the regime will find a warm welcome in many places, just as the US welcomed a similar wave of scientific émigrés from Germany in the 1930s.

But there is no sign that any of this is deterring Trump, or his supporters. Although Republicans have suffered some modest electoral reverses recently, Trump’s approval ratings are still higher than those of his departing predecessor, Joe Biden. The idea that America should stand alone, while dictating terms to “lesser breeds without the law”, seems to have strong appeal.

The closest recent parallel to Trump’s liberation day rhetoric is the North Korean Juche ideology. Although hard to translate, it is often rendered in English as “self-reliance”, “autonomy” and “independence”. Economists use the term “autarky”. Unlike in North Korea, a shift to autarky will not reduce the US to miserable poverty. A withdrawal from the global economy will produce a short-run recession and long-run stagnation in the US, but not necessarily an economic collapse.

How should Australia respond to these developments? Unsurprisingly, the initial response has been denial, followed by (notably unsuccessful) bargaining. We are now beginning to see anger and depression, as the reality of the situation sinks in.

Acceptance will come with the recognition that the US is no longer part of our economic and geopolitical future. This creates an opportunity to finally engage fully with our region and become, politically and economically as well as geographically, an Asian nation. The crucial steps here are to seek membership of the Association of Southeast Asian Nations (Asean) and to find a balance between the would-be hegemons of our region, the US and China. This can’t be done until we abandon both the idea that the US is a friend, and the alliances inherited from the era when this was true.

Breaking with the US will be painful in all sorts of ways. But the break is coming whether we like it or not. Rather than pretending that the return of US democracy is just around the corner, we should welcome the opportunities of becoming a full participant in the most dynamic region in the global economy.

14 thoughts on “Breaking with the US will be painful for Australia in many ways – but it’s inevitable”

  1. The reducing exchange value of our dollar may go some way in countering the effect of the tariffs!

  2. Australia will need to talk quietly and not wave any big sticks. Slowly but surely, sidle away from America. It will be easy enough I think to incrementally reduce economic and cultural ties with the USA. It will be harder to disentangle the military alliance. Simply make no effort to maintain or increase any links in any strategic arena. Rely on entropy and Trumpism to degrade and destroy existing links, which is what they do best.

    Just my opinion of course.

  3. I agree Ikon, there’s already been enough sound and fury to go around and it shouldn’t influence our policy makers. The US appears to be going through a revolution which hopefully won’t be violent and will end when the Republican Party is reformed, or reduced to insignificance.

    The US will just have to see this thing through, the destruction wrought by Trump can only further damage their authority and credibility for a long time.

    There’s some talk about other associations being formed, the rules based trade philosophy once championed by the US remains an attractive basis for cooperation between non US nations. This could be a good thing, an opportunity for mutual benefit.

  4. I spent too much time with WordPress protocol and didn’t fully read JQs last comment;

    “Breaking with the US will be painful in all sorts of ways. But the break is coming whether we like it or not. Rather than pretending that the return of US democracy is just around the corner, we should welcome the opportunities of becoming a full participant in the most dynamic region in the global economy.”

  5. I never wanted any of this to happen … but since it is happening, at least for now, I think there could be some benefits. Maybe it will in some way be better for the world if Australia and European and _____? nations take the lead in fixing globalization … if those areas are not as under the thumb of 1% people as well as straight-up vandals, as we in the US currently are.

    That is, “keep the best of us, do the rest of us …”, as the paraphrased song says.

    Interesting times for sure. More than I wanted.

  6. I am not sure about the approval ratings. My half-baked search is telling me otherwise. But, I am no statistician.

  7. So far as I can tell, all the properly credentialed academic economists and even a lot of the business economists are saying the Trump tariffs policy is going to be a disaster. That’s a broad church of economic thinkers, orthodox and heterodox, who are in agreement on this matter. While they might disagree on many other things they seem near unanimous on this. That is not a proof they are or will be right but it seems to indicate a high probability that Trump is making a fundamental and very serious mistake.

    The way the tariff policy was arrived at and the formula itself, as explained by James Wimberley with excellent references and quick analysis, seem so patently absurd that the old saying, “Not even wrong!” must surely apply. It seems to be the mistake of thinking that a simplistic, indeed nonsensical formula can explain, or be used to predict or manipulate, all the parameters of a wickedly complex set of real and formal systems (the amalgam of real physical world, real economies and formal global financial systems). That kind of “simple formula solves everything” thinking is refuted even in physics by the n-body problem.

    That brings us to the theory, “It’s just a negotiating ploy.” That may be true. However, speaking of the economic consensus again, the consensus I think is that the strategy will break the system and unleash chaos well before the strategy would re-order the system, even if it could reorder the system which possibility seems vanishingly small. If Trump persists and is not curbed by the other arms of government or the people, then a serious recession and quite likely a great depression seem nearly inevitable for the USA, and along with or immediately following that, for the globe.

    Anarchy and fascist barbarism approach. My wife tells me Trump has started banning books. I haven’t checked on that one yet.

  8. “Trump’s approval ratings are still higher than those of his departing predecessor, Joe Biden..”

    Is this the appropriate comparison? Trump has conducted an intense smear campaign against Biden, blaming him personally for every problem in American society. Biden has retired from public life, and the few Democrats energetically fighting back against Trump – Sanders, AOC, Booker – are not wasting political capital by defending his reputation. In the election campaign, Kamala Harris – a generic centrist Democrat politician – consistently scored higher than Biden. Trump beat her in the election, but not by a large margin. The recent protests attracted a decent crowd in Utah of all places. The farmers will be the first to turn against Trump, followed by the laid-off car workers.

  9. One of the things that can happen quite fast, and may have started already, is the rebalancing of investment flows. Imagine you are part of the small team at Norges Bank in Oslo tHat manages the Norwegian sovereign wealth fund under contract to the Norwegian government. What is your current advice on portfolio allocation between countries, given that your client is the archetypal prudent and *ethical long-term investor?

    The total assets of the fund in March were $ 1.7 trn, now down a bit. In 2022 43% was in US assets – I couldn’t find a more recent number, but it’s unlikely to have changed much, given the strong US economy under Biden. Trump has damaged it, both in the short term (supply-chain disruption, inflation, recession), and the long through hostility to research, education and immigration, decreased competition from protectionism, and backward-looking industrial policy. Say the Bank starts with a very modest reduction to 40% in US exposure. That’s $51bn taken out of the US financial markets.

    *The ethical part is ironical given that the fund comes entirely from oil exports. They should frame La Rochefoucauld´s epigram and hang it in the boardroom:

    L’hypocrisie est un hommage que le vice rend à la vertu.

  10. One day Trump makes policy, the next day he unmakes it.

    US President Donald Trump has announced a 90-day pause on “reciprocal” tariffs that had just been placed on imports from dozens of countries.

    All countries except China will now be subject to the same “baseline” 10 per cent tariff rate, rather than the additional rates announced by the president at “liberation day” last week.

    In the same social media post, Mr Trump said he was again increasing the tariff on Chinese goods, this time to 125 per cent and effective immediately.

    Mr Trump wrote that his pause was based on the fact more than 75 countries had reached out “to negotiate a solution to the subjects being discussed”, and they had not “retaliated in any way, shape, or form”. – ABC News.

    How can such policy be administered? Essentially it cannot. Administration requires an implementation lead time, a “re-tooling” of structure, apparatus, procedure, processes and processing, then a bedding in and debugging period and so on. And try doing this when your Department has had mass sackings.

    There is madness without method in Trump’s suspended multiple backflips without landing. It is a tale told by an idiot: full of sound and fury, signifying nothing.

    “Asked later why he decided on the pause, he said: “I thought that people were jumping a bit out of line … they were getting a little bit yippy, a little bit afraid.” – ABC

    This sounds like projection. Methinks Trump is getting a little yippy, a little afraid of what he has done.

  11. This Trump ‘pause’ is an act of a psychopath, he dangles the mouse from his paw, dispassionately watching its terrified struggles for life. There is nothing commendable in his actions.

    There’s no doubt that China has achieved a miracle in building a nation but it has come at a cost, human rights is a sensitive topic for Beijing. Western democracy and liberalism has been seen as an impediment and therefore a target. By trampling all over due process Trump has been of great assistance to China, China is now the victim of a free market bully, the separation between western democracy and authoritarianism is narrowing.

  13. The Americans voted in a convicted felon. The Supreme Court gave him a stay out of jail for ever card. Did they think he would not get up to every nefarious scheme possible? Did they think that he would care about the state of the people, the state of the country, the state of the world. How stupid are they?

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