What is the lesson Australia can draw from the first shots fired in the Dumbest Trade War in U.S. History?

 

On the matter of the U.S.-Australia Free Trade Agreement (FTA)

The Office of the United States Trade Representative (USTR) situated in The Executive Office Of The President.

The full text of the Agreement is available here and the Advisory Committee Reports are available here. The latest information regarding significant trade barriers can be found in the 2021 National Trade Estimate Report, see here.

Australia Trade Summary

U.S. goods and services trade with Australia totaled an estimated $77.1 billion in 2022 (latest data available). Exports were $52.1 billion; imports were $25.0 billion. The U.S. goods and services trade surplus with Australia was $27.1 billion in 2022.

U.S. goods exports to Australia in 2023 were $33.7 billion, up 10.2 percent ($3.1 billion) from 2022 and up 29 percent from 2013. U.S. goods imports from Australia totaled $16.0 billion in 2023, down 1.3 percent ($216 million) from 2022, but up 72 percent from 2013. U.S. exports to Australia account for 1.6 percent of overall U.S. exports in 2023. The U.S. goods trade surplus with Australia was $17.7 billion in 2023, a 23.2 percent increase ($3.3 billion) over 2022.

U.S. exports of services to Australia were an estimated $21.6 billion in 2022, 30.6 percent ($5.1 billion) more than 2021, and 5 percent greater than 2012 levels. U.S. imports of services from Australia were an estimated $8.8 billion in 2022, 41.4 percent ($2.6 billion) more than 2021, and 20 percent greater than 2012 levels. Leading services exports from the U.S. to Australia were in the financial services, travel, and telecommunications, computer, and information services sectors. The United States has a services trade surplus of an estimated $12.7 billion with Australia in 2022, up 24.1 percent from 2021.

U.S. foreign direct investment (FDI) in Australia (stock) was $173.7 billion in 2022, a 1.6 percent decrease from 2021. U.S. direct investment in Australia is led by nonbank holding companies, mining, and manufacturing.

According to OEC.World:

In October 2024, United States exported $2.49B and imported $1.59B from Australia, resulting in a positive trade balance of $901M. Between October 2023 and October 2024 the exports of United States have decreased by $-432M (-14.8%) from $2.93B to $2.49B, while imports increased by $195M (13.9%) from $1.4B to $1.59B.

On the fifth day of the US 47th Presidency the USTR issued the following statement:

USTR Announces Review of Unfair Foreign Trade Practices

January 24, 2025

WASHINGTON-- The Office of the U.S. Trade Representative announced today that it will review foreign trade practices to account for those practices which may be unfair to the United States, including those practices that may be unreasonable or discriminatory and that may burden or restrict United States commerce.

This review is conducted pursuant to Sections 2(c) and 3(c) of the Presidential Memorandum "America First Trade Policy" signed on January 20, 2025.

By 1 February 2025, the 12th day of this current presidency, at least the first three of what appears to be cursory reviews of foreign trade practices (allegedly enabled by US International Emergency Economic Powers Act) had been completed and Canada, Mexico and China had received notice of an increase in tariffs across the board on their goods & services entering American territorial boundaries.

NOTE: Previous to this the vast majority of U.S. imports from Canada and Mexico could enter the U.S. duty-free, thanks to the US-Mexico-Canada Agreement.

From the start date of this new tariff regime on 4 February 2024, these Canadian, Mexican and Chinese goods & services have an estimated combined value at the end of the first 12 months of more than US$1 trillion.

As the actual dollar cost of these tariffs are born predominately by US importers of Canadian, Mexican and Chinese goods/services and businesses are not prohibited from passing 100% of tariff-induced costs onto the consumer, although the impact of these tariffs will be felt in all four national economies it has been calculated that with the initial retaliatory counter tariffs in place US Gross Domestic Product (GDP) growth will potentially halve in 2025, subsequently significantly impeding America's economic growth.

Now that he has started a trade war with his two largest free trade partners, it appears that Trump wants to temporarily de-escalate tensions and has suspended imposing the new tariffs on Mexico for a month and appears to have spoken with the Canadian prime minister with unspecified results.

There are perhaps lessons here for Australia when Trump announces increased tariffs on Australian exports to the United States.

Hopefully the lesson learnt is that Australia should match any new tariff rates percentage point for percentage point across the board and insist there is no bargaining this position away - either by agreeing to an offer of a smaller increase in US tariffs, by the US excepting certain goods & services from these tariffs or by entering into new or altered agreements on any matter in which Australia and the United States can be thought to have a mutual interest as a condition of an easing or removal of tariffs.  

Repeatedly stating with strong emphasis that under the 2005 Australia-United States Free Trade Agreement (AUSFTA) the US already shows a trade surplus with Australia that it knows it can bank - and it has been certain of that trade surplus almost without exception for the last 123 years since 1901 when the newly established Commonwealth of Australia was exporting A$6.9 million (7.0% of all exports) to the US and was importing from the US A$11.7 million (13.8% of all imports) in return.

Trump's set the bar high as he begins his punitive Trade War 2.0 with the rest of the world

 

On 1 February 2025 the U.S. White House released a Fact Sheet entitled "Donald J. Trump Imposes Tariffs on Imports from Canada, Mexico and China".

Stripping away 90 per cent of the rhetorical posturing contained therein, the fact sheet stated that:

 

"President Donald J. Trump is implementing a 25% additional tariff on imports from Canada and Mexico and a 10% additional tariff on imports from China. Energy resources from Canada will have a lower 10% tariff."

Going on to assert: 

"Access to the American market is a privilege. The United States has one of the most open economies in the world, and the lowest average tariff rates in the world.

While trade accounts for 67% of Canada’s GDP, 73% of Mexico’s GDP, and 37% of China’s GDP, it accounts for only 24% of U.S. GDP. However, in 2023 the U.S. trade deficit in goods was the world’s largest at over $1 trillion.

Tariffs are a powerful, proven source of leverage for protecting the national interest. President Trump is using the tools at hand and taking decisive action that puts Americans’ safety and our national security first."

That same day in immediate response to these increased US tariffs, the Canadian Government released the following:

News release (excerpt)

"February 1, 2025 - Ottawa, Ontario - Department of Finance Canada

Today, the Honourable Dominic LeBlanc, Minister of Finance and Intergovernmental Affairs, and the Honourable Mélanie Joly, Minister of Foreign Affairs, announced that the Government of Canada is moving forward with 25 per cent tariffs on $155 billion worth of goods in response to the unjustified and unreasonable tariffs imposed by the United States (U.S.) on Canadian goods.

These countermeasures have one goal: to protect and defend Canada’s interests, consumers, workers, and businesses.

The first phase of our response will include tariffs on $30 billion in goods imported from the U.S., effective February 4, 2025, when the U.S tariffs are applied. The list includes products such as orange juice, peanut butter, wine, spirits, beer, coffee, appliances, apparel, footwear, motorcycles, cosmetics, and pulp and paper. A detailed list of these goods will be made available shortly.

Minister LeBlanc also announced that the government intends to impose tariffs on an additional list of imported U.S. goods worth $125 billion. A full list of these goods will be made available for a 21-day public comment period prior to implementation, and will include products such as passenger vehicles and trucks, including electric vehicles, steel and aluminum products, certain fruits and vegetables, aerospace products, beef, pork, dairy, trucks and buses, recreational vehicles, and recreational boats.

In addition to this initial response, Ministers LeBlanc and Joly reiterated that all options remain on the table as the government considers additional measures, including non-tariff options, should the U.S. continue to apply unjustified tariffs on Canada......"

On 1 February 2025 the Government of Mexico also responded to the new US tariffs by instructing its Secretary of Economy to implement "tariff and non-tariff measures in defense of Mexico's interests" and its President strongly countering the absurd claims in the White House 'fact sheet' with: 

"We categorically reject the White House's slander against the Mexican government of having alliances with criminal organizations, as well as any intention of intervention in our territory.

If such an alliance exists anywhere, it is in the United States armories that sell high-powered weapons to these criminal groups, as demonstrated by the United States Department of Justice itself in January of this year."

As yet, Mexico has not indicated which US goods would be included in retaliatory tariffs. However media reports canvas the possibility of pork, cheese, fresh produce, manufactured steel and aluminium being included.

China's response became known on 2 February 2025.

China Daily, 2 February 2025:

China will file a lawsuit with the World Trade Organization and take necessary countermeasures to safeguard its rights and interests, the Ministry of Commerce said on Sunday after the United States announced it would impose 10 percent additional tariffs on goods from China.

The Ministry of Commerce said in a statement that the unilateral imposition of tariffs by the US seriously violates the rules of the WTO, fails to address US domestic issues, and undermines regular economic and trade cooperation between the two countries.

"We urge the US to objectively and rationally view and handle its own fentanyl and other issues, rather than resorting to tariff threats against other countries," the commerce ministry said in a statement.

China urges the US to correct its wrong actions, move toward the same direction as the Chinese side, face problems directly, engage in frank dialogue, strengthen cooperation and manage differences on the basis of equality, mutual benefit and respect, the commerce ministry said.

Exactly how much Trump's trade war is going to cost all four national economies is uncertain but it is not unreasonable to start the count in the billions of dollars annually if the situation continues unchecked. If so this can be expected to knock percentage points of the Gross Domestic Product of Canada, Mexico and probably that of the national debt-ladened United States.

The implications for Australia are uncomfortable to say the least.

In the first instance because assurances appear to have been given to Canada and Mexico in 2024 that the US tariffs imposed on their goods & services in 2025 would not reach anywhere near 25 per cent and, Australia can no longer have confidence that the new tariff level discussed with it will be a low as promised.

In the second instance because there is no way that global trade will not experience some disruption as these tariffs are rolled out to more OECD countries during the coming months and, as Australia with an export market spanning at least 27 of the 38 countries in this category we have a potential risk exposure independent of whatever absurd import/export trade demands Trump decides to makes of us.

BACKGROUND

Financial Review 30 January 2025, p.19 excerpt:

US national debt is around $US30 trillion ($48 trillion), bringing annual interest costs for the government near $US1 trillion and helping tip the nation's budget into a $US1.8 trillion deficit in fiscal 2024.

Sovereign debt accelerated sharply following the COVID-19 pandemic. That has sparked wider market concerns about the sustainability of the US balance sheet and sent bond yields advancing since Trump's election win in November. The bond market reaction is a concerning sign, according to Mr Lamm, given the US Federal Reserve has already begun to cut rates.

"The bond market appears to be taking a cautious view on rising inflation risks and elevated US budget deficits into an environment where there remains a high degree of uncertainty regarding the ultimate form and impact of President Trump's economic policies."

Meanwhile, gold - traditionally perceived as a safe haven asset to ride out wider market volatility - rose more than 25 per cent last year, touching a record high of nearly $US2800 an ounce in October.

Its best year in more than a decade was attributed to strong demand from global central banks - particularly the People's Bank of China, which revealed last month that it had resumed buying gold in November after a six-month hiatus....

US president-elect Donald J Trump announces the following based on "Project 2025: presidential transition project" hard right political playbook

On 8 November 2024 US president-elect and convicted fraudster, 78 year-old Donald John Trump made the following announcement ushering in an authoritarian state, headed by a president intent on revenge against those he perceives as his enemies and retribution for a long list of delusional grievances.

 

Donald Trump has just released his plan to "demolish the deep state."

Unglued Project 2025 stuff.

Buckle up, folks. pic.twitter.com/AniimjUcbG

— Art Candee 🍿🥤 (@ArtCandee) November 8, 2024

 The Heritage Foundation and the Project 2025 Advisory Board - along with Donald Trump himself - have repeatedly denied any association with each other. Unfortunately these denials have proved to be untruths.

Project 2025 922-page 180-Day Playbook at

https://www.project2025.org/playbook/ 

and

https://static.project2025.org/2025_MandateForLeadership_FULL.pdf   

Australia's initial reaction to Trump's election win is a mixture of caution and dread....

Financial Review, 7 November 2024:

President-elect Donald Trump will likely be a unilateralist in his dealings with Australia and the rest of the world, neither a pre-World War Two isolationist nor the post-war global policeman.

Trump’s highly transactional view of life means he will take America in and out of world affairs as and when it suits his mercurial personality. He will approach each international relationship through the prism of what is in it for him. For Trump, the geopolitical is personal.....

The immediate risk for Australia is Trump’s flagship policy of tariffs on imports, which threaten a 60 per cent charge on Chinese goods and up to 20 per cent on all others. Robert Lighthizer, his hawkish former trade representative who is tipped to return to the new administration, doesn’t believe that free trade works. He argues that America did not lose its microchip industry because of a lack of comparative advantage, but because of the subsidies and industry policies of other countries. He also thinks it has been China’s choice not to open more of its domestic market to better balance its trade with the US.

Australia is a small open economy highly exposed to the ripple effects of an all-out US-China trade war. ANU economist Warwick McKibbin says that because China takes a massive 47 per cent of Australia’s goods exports, the collateral damage to Australia from a Sino-US tariff fight could mean a hit on the economy of 0.3 per cent of GDP a year by 2035. In America, the proposed tariffs would rekindle inflation, forcing up interest rates and the cost of funding immense US debts. That will keep upward pressure on global interest rates too, making it harder for the Reserve Bank to cut rates here. On the other hand, China may have kept fiscal stimulus plans in reserve for a Trump trade clash, from which Australia would gain.

Australia will watch closely how Trump treats wider US alliances in the Pacific.

The mutual harm of a trade war might pave the way to negotiating instead. Trump might be content to use the threat of tariffs to push for concessions from trade partners. And if tariffs were to be implemented, the heavy cost to US consumers and the damage to US exporters hit by retaliatory tariffs could see Congress itself water them down to more selective targeting. Australia could blunt some of the impact of any tariff changes by successfully negotiating reductions as it did for steel and aluminium exports during the first Trump administration.

Australia will watch closely how Trump treats wider US alliances in the Pacific, the so-called “lattice work” of partnerships built up by the Biden administration connecting Japan, South Korea, the Philippines, India, and Australia.

Trump has a much more insular vision of American power, viewing long-term commitments to international alliances as liabilities the US could do without. Yet if he leaves a strategic vacuum by quitting the region then China, Russia and others would move fast to fill it. And it would not be long before even a more self-contained Trump America began feeling the pressure of an expanding China. Trump would find that turning his back on allies was a more costly transaction than he thought.

The Sydney Morning Herald, 7 November 2024:

Donald Trump’s policy agenda could precipitate a global financial crisis and fuel inflation, one of the world’s leading analysts has warned, with fears Australians will suffer higher interest rates and a $36 billion hit to the domestic economy.

As the Reserve Bank conceded the incoming US president’s debt-fuelled policies would put upward pressure on global interest rates, former bank board member Warwick McKibbin likened the impact of Trump’s plans on Australia to being in the middle of a line of fireworks as they exploded on New Year’s Eve.

Trump’s plans also pose enormous political problems for Prime Minister Anthony Albanese and Liberal leader Peter Dutton in the lead-up to next year’s election, with analysis suggesting even winning some concessions from the Trump administration would not prevent ongoing turmoil for Australia.

Interest rates globally have climbed since Trump’s victory over US Vice President Kamala Harris, fuelled by expectations his plans for tax cuts, tariffs and the deportation of millions of undocumented workers will increase the size of American government debt.

The Committee for a Responsible Federal Budget, an independent US organisation, estimates the Trump agenda would increase debt by $US7.8 trillion ($12 trillion) by 2035, taking it to an unprecedented 143 per cent of GDP.

Following Wednesday’s election results, the Australian dollar – among many currencies – lost value against the US dollar as investors bet a further lift in American government debt would require higher interest rates.

More speculative investments such as cryptocurrencies also enjoyed a surge in support. The price of bitcoin lifted from $104,500 early on Wednesday to a record high of $116,000 in the 21 hours after Trump’s re-election became clear.

Giving evidence to a Senate hearing in Canberra, Reserve Bank assistant governor Christopher Kent said Trump’s policies such as tax cuts would probably mean higher US long-term interest rates and inflation, which would flow through to the global economy.

“Because the US is such an important source of funding, and the demand by the government for borrowing is substantial, that’ll have upward effects on global interest rates,” he said.

Kent said Trump’s protectionist tariff policies would slow growth around the world.....

McKibbin said Trump’s tariff plan, which includes imposts of 10 to 20 per cent on Australian goods and 60 per cent on those from China, would directly hit the local economy while undermining global trade.

But the broader elements of Trump’s agenda, especially possible interference in the setting of American interest rates, could deliver the world another financial crisis.

“It’s like standing on Sydney Harbour Bridge when they set off the fireworks – you don’t want to be on it. There are fuses everywhere and they are just going to ignite,” McKibbin said.

Nationwide News, 7 October 2024:

The Reserve Bank claims there could be an “adverse effect” on Australia if incoming US President Donald Trump were to impose tariffs of up to 60 per cent on China.

During senate estimates on Wednesday, RBA assistant governor Christopher Kent said it was a “big concern“ whether Mr Trump follows through on the levies of Chinese-made goods, but added the full-effect was still unclear.

The levies would be higher than the 7.5 to 25 per cent implemented during his first time.

They are considered part of a broader suite of measures to boost the US economy, which also includes broad tariff increases on all imports of up to 10 per cent, cutting taxes, slashing immigration, and deregulation.

“The big concern is large tariffs on China, which may have an adverse effect on us,” he said.

“So is it right to characterise the RBA position as of this morning as unclear in terms of what the United States election outcome means for inflation outlooks.”

Speaking more broadly, he said Mr Trump’s promised tariffs would likely ”push up” the US dollar and create less demand by the US for goods produced in other markets.

“But it means less demand by the US for global goods, so that’s sort of a negative for growth elsewhere,” he said.....

UPDATE

Trump with the bit between his teeth on 15 December 2022.....

DEVELOPING: 🚨 President-Elect Donald Trump Outlines Plan to “Shatter” Censorship Regime, Restore Free Speech 🚨

President-Elect Donald Trump has released a comprehensive strategy to dismantle what he calls the "left-wing censorship regime," promising swift action on his first… pic.twitter.com/fjwJViKabz

— MiddleMaga.com (@StucknDaMid) November 8, 2024