By Dr Anand Kulkarni

The people have spoken. Despite all the excitement, anger and bewilderment of the last couple of days, the results remain unchanged. Trump will be the president of the United States of America (US). What remains is to sift through the various policy pronouncements, to the extent that there were any, and try and speculate as to what the Trump presidency might mean. In this article, I turn to Australia for some answers. 

Money and stock markets are notably fickle. Immediately after Trump’s victory, both the Australian and the global markets plunged. But, these drops have now been replaced by a quick recovery and a certain sense of calm. It is what will happen after that remains in doubt.

At first glance, the US and Australian connection in defence and economic terms is robust, historically strong and reflects shared values. Hence, one would surmise that the ANZUS defence alliance and the specific Australia-USA Free Trade would remain relatively unscathed.

Economic Impact

High tarrifs on Chinese imports can lead to trade wars

High tarrifs on Chinese imports can lead to trade wars | Photo Courtesy: Bloomberg

The cause for concern then lies in the indirect effects of the Trump presidency. Firstly, Trump’s proposal to put high tariffs (45%) on Chinese imports has a number of implications. These include inviting the possibility of retaliatory Chinese action, which could lead to multiple trade wars. Obviously, this is damaging for global growth. For Australia, this will be particularly harsh as China is Australia’s largest trading partner. 

Another critical aspect is Trump’s aversion to the current structure of many Free Trade Agreements. His first act could be the tearing up of the Trans Pacific Partnership, an all-encompassing trade arrangement involving 12 nations including Australia. If the US pulls out of this or attempts to radically redefine its scope, the consequences could be severe. Access to the key US market will be constrained, particularly for major Australian beef, dairy and wheat exporters.

Recent estimates of Trump’s policies suggest ballooning budget deficits and debt, in part to pay for the large decline in corporate tax that Trump has pledged. Such a development has the potential to raise interest rates and push the US into recession, thereby dragging its key economic allies and the world along with it.

The third major area of concern is the American economy itself. Recent modelling suggests that Trump’s promises, including major increases in military spending, would add some seven trillion US dollars to the national debt over the next decade. This would push the national debt to the unsustainable level where it is 105% of the GDP.  

Closely related to all of this is uncertainty and just what exactly Trump will do. That alone is sufficient to have potentially negative global impacts on investment and the business environment.

Climate Change

On other issues such as climate change, Trump is no fan of action. This can be very costly as it is possible that a number of countries will simply walk away from their targets and commitments. This list is likely to include Australia. Even if countries don’t walk away, they could water down the agreements, thus having a significant negative environmental impact. Apart from the environmental damage, this would lead to a slowing down of economic activity associated with clean technologies and environmental management services.

Geo-Politics

Trump has put forward that Japan and South Korea should pay for defence support provided by the US that might lead to gradual disengagement of the US from the Asia-Pacific Region.

On the geopolitical side of things, again one cannot be sure. Trump has put forward that Japan and South Korea should pay for defence support provided by the US. Extrapolating, this could be one small part of a gradual disengagement of the US from the Asia-Pacific Region. For Australia, this would mean significantly re-examining and redefining its relationships, both at the formal and informal level, to foster regional stability.

Can Trump change?

Of course, much of this is based on the posturing that is observed in election campaigns, where candidates say and promise things that they do not ultimately do. When facing the realities of the office and all the various hurdles that come with it, candidates become more moderate. Already, in the past few days, we have seen a more measured Trump. His words seem more thoughtful, especially when compared to the wild pronouncements he previously made. It may just be that in office, many of the things that people fear do not come to pass.


Dr Anand Kulkarni is Consultant and Principal Adviser for Victoria University, Australia, and is a Fellow at the Centre for Policy Development. The views expressed here are the author’s and do not reflect the views of The Indian Economist.

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Posted by The Indian Economist