The idea of open international exchange that shaped Australia’s late 20th century reforms and its subsequent economic success is being challenged in the 21st century. The challenge is compounded by the reinstatement of Donald Trump as President of the United States. He is obliged to do so higher protections, tax cuts that will push budget deficits to record levels, a trade war that threatens even worse for Australia’s largest trading partner, and the US separation from the rules-based international trading system. He is also obliged to withdraw from international cooperation and domestic efforts to reduce climate-damaging greenhouse gas emissions. A global financial crisis cannot be ruled out.
This development will harm Australian interests. Global long-term interest rates provide a baseline against which Australian interest rates will be based and will be higher than they otherwise would have been. International inflation will be higher, adding to Australia’s own inflation challenge. Australia is the developed country with the most to lose from curbing global warming. Australia has more to gain economically than any other country by achieving net-zero carbon emissions globally as an exporter of zero-carbon goods to countries lacking abundant renewable energy and biomass resources.
Australia’s own commitments to open multilateral trade and strong public finances are more important than ever. Both are challenged by the encouragement that Trump’s America is giving to protectionist and inward-looking sentiment here and in other countries.
The US is a relatively small market for Australian goods and services. The biggest damage to Australian trade will come indirectly from a slowdown in growth in China and other Asian trading partners. The extent of the damage will depend on how Australia and its other international partners respond. This shows the interest of the rest of the world in more open international exchange when the US closes down. The most constructive response is to further liberalize trade. The additional gains from trade will offset, and if we go far enough, more than offset, the damage from increased U.S. protection.
The political instinct of politicians affected by the new US barriers to their exports will be to retaliate by erecting barriers against the US. It would increase the damage to the retaliatory countries. It would also increase the difficulty of reintegrating the United States into the open international trading system if domestic political developments make it possible. Americans, Australians and others have a shared interest in seeing the United States return to the open trading system – a system that the United States established with the support of others after World War II and from which the United States and the rest of us have benefited enormously.
The rest of the world should try to preserve the institutions of the rules-based international system during the American hiatus. We’ve had a lot of practice with this over the last few years and know that it can work. This also increases the chances of returning from the USA soon.
Even on climate change, the damage can be minimized if the rest of the world maintains its progress—and the institutions through which it is achieved—while the United States retreats. It is possible that the United States will further reduce its emissions through a new Trump presidency. This will not affect the efforts of the state and the city. And it’s not safe Inflation The Reduction Act and other Biden measures to reduce greenhouse gas emissions will suffer significant damage under the new Trump presidency, despite promises to the contrary. Texas – Trump’s land – has been the biggest beneficiary, now generating twice as much solar and wind energy as California. Repeal would require the votes of congressmen from Texas and other red states with high levels of renewable energy. Economic interests can take precedence over ideology.
The US would never become a significant player in global markets for the inputs and outputs of the zero-carbon economy. As long as other countries continue their efforts, progress towards the agreed global climate goals can continue. It helps that China, the world’s largest emitter of greenhouse gases, could have peaked in 2023, seven years ahead of its international commitments. China sees an advantage in global geopolitical competition with the United States by increasing its efforts as the United States exits the international climate arena.
On both climate and trade, the best response for Australia and the rest of the world to America’s withdrawal from international cooperation is to remain stable and, where possible, deepen cooperation among themselves.
One consequence of the US withdrawal from international cooperation on trade and climate will be reduced US influence in the rest of the world. Rising protectionism and budget deficits since the start of Trump’s first presidency, which continued into the Biden years, have already reduced America’s competitiveness in global markets. This has helped China become the leading trading partner for many more countries than the United States. Inequality will increase. It’s unfortunate. But if the rest of the world remains consistent on trade and climate policies and avoids retaliation against the United States, it can increase the chances of an early return to American influence.
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Ross Garnaut is Emeritus Professor of Economics at the University of Melbourne and the Australian National University and Director of Zen Energy and The Superpower Institute. These ideas are developed in Ross Garnaut’s new book: Let’s tax carbon and other ideas for a better Australia. published by Black Inc with Latrobe University Press
