Australia seems ready to handle the economic effects of rising US protectionism. A recent analysis by the Productivity Commission shows only a small impact on the economy. A well-known economist supports this view, saying Australia can manage global trade changes better than others.
On Tuesday morning, President Donald Trump released letters outlining individual countries’ tariff rates, mostly matching levels previously announced. He also pushed the negotiation deadline from July 9 to August 1. As the world braces for more economic changes and speculates about the outcome of these tariffs, Professor Warwick McKibbin, an economics expert at the Australian National University, shared an optimistic view. Speaking at the Australian Conference of Economists on Monday, he stated that “Australia’s in probably the best position to handle” the fallout from the Trump administration’s trade policies. He encouraged Australia to see these disruptions as an “opportunity” to build stronger trade relationships with both existing and new partners. He advocated for active trade talks and efforts to remove current trade barriers.
Professor McKibbin’s conclusion, that Australia would remain relatively unscathed by US trade disruptions, aligns with separate modeling done by the Productivity Commission. Their analysis suggests that the Australian economy might even see a slight boost from America‘s higher trade barriers. Importantly, the Productivity Commission found that any retaliatory tariffs imposed by Australia would be counterproductive. They recommended focusing on domestic reforms to improve the potential of the Australian economy.
The Australian government agrees with the Productivity Commission’s findings, which support its stance on American protectionism. Treasurer Jim Chalmers stated that “the key message from the PC review is that Australia is best served by continuing to advocate for free and fair trade, and that’s exactly what we’ve done.”
However, the opposition has questioned the prime minister’s direct engagement with the US president. James Paterson, the shadow finance minister, expressed on Channel Nine that he believes “the only fair tariff on Australia would be 0%, and he hoped that’s what Australia would get.” He added that Australia has not done enough to secure this favorable outcome from the Trump administration, noting that Prime Minister Anthony Albanese has yet to meet President Trump in person, despite seven months since his election.
The Productivity Commission’s modeling linked the “small, positive effect” on Australia’s economy to two main factors. These are the redirection of goods that were meant for the US to Australia at more competitive prices and Australia’s ability to attract some investment capital moving from the US and other heavily taxed nations. Still, Alex Robson, the Productivity Commission’s deputy chair, warned that the expected 0.4% increase in GDP did not include other complex and challenging-to-model effects. He emphasized that while the proposed tariffs would likely have a “relatively small direct effect” on Australia, the widespread global uncertainty they bring could affect living standards both in Australia and elsewhere.
President Trump’s social media posts revealed potential tariff rates of 25% on Japan, South Korea, and Malaysia, which were all very close to previously mentioned tariffs. Tapas Strickland, NAB’s head of market economics, offered early insights into where import tax rates might eventually settle. He suggested that “if the agreement with Vietnam is anything to go by, then countries where the US has a trade deficit look likely to have a 20% tariff, and those with a trade surplus will face a 10% tariff.” Mr. Strickland concluded that this trend might lead to higher tariff rates than the current expectations, which broadly predict a 10% overall tariff, with a larger impact on China.
