Australia ready if Trump starts a trade war

Australia is the best placed of any Western nation to withstand a Trump-induced trade war, says the UNSW Business School’s Tim Harcourt.

“We are now staring down the barrels of a global battle for free trade, thanks to President Trump's protectionist trade policies. This would have potentially serious implications for trade-focused economies such as Australia. However the ‘Aussie Battler’ could come out better off,” Harcourt says.

President Trump made an election pledge to hit imports from its second-largest trading partner, China, with high tariffs, following plans for a 20% tariff on imports from the US' third largest trading partner, Mexico.

Tim Harcourt is the JW Nevile Fellow of Economics at the UNSW Business School. He says, “now, more than ever, what we don’t want to see is protectionism. We need cooperative trade to boost the world economy”.

President Trump has, however, begun carrying out his campaign pledges to undo America's trade ties, including pulling the United States out of the Trans-Pacific Partnership (TPP).

By pulling the US out of the TPP, Harcourt says President Trump killed the deal with Australia, New Zealand and nine other Pacific nations. “The Trans-Pacific Partnership was a huge trade pact, five years in the making. To kill it now was a massive blow to Australian producers, who had hoped to see much more trade with the US. Instead they are now looking to China.”

China is now pursuing President Xi Jinping’s signature ‘One Belt, One Road’ initiative, which seeks to connect countries across Asia via trade. “This could give a massive boost to Australian-China trade. It comes just as Australia needs it, and everyone from miners in the outback to farmers in the bush and service exporters like architects are now eyeing up the possibilities of much more trade with China.

"The US could have had a slice, but instead it looks like China will be the economic winner – exactly the opposite of what Trump wanted.”

Harcourt warns of risks to stability in the region. “China may cut its holdings of American bonds – damaging the US economy. Meanwhile the US could engage in gunboat diplomacy in the South China Sea. It is unlikely President Trump will withdraw defence protection from South Korea and Japan, however the rhetoric and tone of the administration will be ‘America first’, and that’s a worry for Australia and the Asia Pacific.”

Tim Harcourt was previously chief economist at Austrade. As a trade specialist at UNSW, he has studied the international trade landscape for many years, and can comment on all parts of the TPP.