Just as inflation is moderating and the Reserve Bank of Australia is cutting interest rates,the prospect of a global trade war kick-started by Trump is threatening to jack up prices again. Reading the budget,you can feel the frustration of Treasury officials bouncing off the glossy pages,despite the understated language they deploy.
The section on the economic outlook for the US states:“Recent trade policies and the associated policy uncertainty are having a negative impact on consumer and business sentiment,increasing inflation expectations,and affecting trade between the United States and the rest of the world”. Giving the Trump administration some benefit of the doubt,it adds that its deregulatory policies,“depending on how they are approached,have the potential to stimulate spending and investment”.
Illustration by Matt Golding
The budget comes just a week before Trump’s much anticipated,and feared,“Day of Liberation”. April 2 is when he has threatened to launch reciprocal tariffs against allies and rivals alike. After being hit with steel and aluminium tariffs earlier this month,Australia has not received any promise of an exemption to future tariffs.
In recent days,US officials have signalled that the sweeping imposts could be scaled back as a way to soothe worried sharemarkets. Trump himself said on Tuesday:“I may give a lot of countries breaks … We may even be nicer than that.” Australia looks well-placed to be spared,given the nation has a rare trade deficit with the US and does not impose tariffs on American products. However,as the budget papers make clear,uncertainty is the air we breathe in the world of Trump 2.0. The president could easily change his mind,again.
Trump’s unspoken impact can also be seen in the government’s decision to rejig $119 million in foreign aid funding to focus more on the Pacific and South-East Asia and less on global initiatives. The move is designed to help offset Trump’s devastating cuts to US aid funding in Australia’s region.
Loading
In other ways,Trump’s impact is strikingly absent from the budget. Senior Pentagon officials have called for Australia to lift its share of defence spending to 3 per cent of gross domestic product (GDP),but the government is sticking to its plan,announced last year,for defence spending to rise to 2.33 per cent of GDP within a decade. A measly $1 billion in spending is being accelerated,a tokenistic move that contrasts with recent British and European moves to dramatically increase defence spending to beef up their militaries.
Even as the world changes around Australia,some things remain the same.
Cut through the noise of federal politics with news,views and expert analysis.Subscribers can sign up to our weekly Inside Politics newsletter.