Australia in the firing line as America goes to the polls – The Australian Financial Review

No US president in the modern era has decided that imports are just bad.

by Craig Emerson

Australians usually take little notice of the US midterm elections, especially since they coincide with the Melbourne Cup celebrations.

But this time, while racegoers and enthusiasts recover from the race that stops Australia, nothing will stop President Donald Trump if his party retains control of both houses of Congress. America’s most protectionist President of the post-war era will confidently pursue economic and trade policies that can only inflict further long-term damage on the global economy, including ours.

President Trump has not been constrained by the current Congress from racking up massive government debt, pushing hard on the fiscal accelerator while the Federal Reserve hits the monetary brakes with a succession of interest rate rises, with more foreshadowed. House Republicans have proved to be just as disinterested in reining in America’s yawning budget deficits as Democrats.

And, as the President has demonstrated, he does not need the approval of Congress to trigger a trade war with China. Never before in the modern era has the world witnessed an American President who genuinely believes the less a country imports the better off it will be.

President Trump and China's President, Xi Jinping, are scheduled to meet on the sidelines of the G20 meeting at the end ... President Trump and China’s President, Xi Jinping, are scheduled to meet on the sidelines of the G20 meeting at the end of this month. Andy Wong

But if the midterms go his way in manufacturing states such as Pennsylvania, Ohio, Michigan and Wisconsin, Republicans will be emboldened to turn protectionist. Democrats instinctively are more protectionist than Republicans, so no matter who wins, the Congress is likely to become more protectionist following the midterm elections.


What an irony that, at the same time as the American midterm elections are likely to cement a congressional view that imports are bad, China will be hosting a massive international import expo designed to encourage imports into the country.

Global recession

President Trump and China’s President, Xi Jinping, are scheduled to meet on the sidelines of the G20 meeting at the end of this month. Trump has warned that if the meeting does not go well he will extend tariffs to all goods imported from China.

If Trump carries out his threat, China and the US will be waging an all-out trade war. If other countries were to be dragged into that trade war in response to owners of low-price US and Chinese imports seeking third-country markets, a deep global recession would follow.

PM Scott Morrison announced that the government was open to relocating Australia's embassy in Israel from Tel Aviv to ... PM Scott Morrison announced that the government was open to relocating Australia’s embassy in Israel from Tel Aviv to Jerusalem. MICK TSIKAS

America’s threat to the rules-based global trading system is worrying enough, but a Trump Republican victory in the midterm elections could encourage a wider, colder war with China. In early October, US Vice-President Mike Pence delivered a scathing attack on China, accusing it of “pursuing a comprehensive and coordinated campaign to undermine support for the President, our agenda, and our nation’s most cherished ideals”.

China should not be spared objectively based public criticism, but a US administration waging a cold war with China would have much more devastating global economic consequences than resuming one with Russia, whose economy does not rank in the world’s top 10.

In the circumstances of escalating trade tensions between the Trump administration and China, what can Australia do?

While we will not be able to influence administration policy, we should not slavishly follow it.

In the context of the Wentworth byelection, Prime Minister Morrison announced that the Australian government was open to relocating Australia’s embassy in Israel from Tel Aviv to Jerusalem and to withdrawing its support for the Obama administration’s Iran nuclear deal.

National interest

Both announcements brought a swift, predictably adverse reaction from the world’s most populous Muslim nation, Indonesia, imperilling the Indonesia-Australia Comprehensive Economic Partnership. Despite Morrison’s claims to the contrary, his envoy, Malcolm Turnbull, did not exceed his brief when discussing these matters with President Joko Widodo, instead trying to protect Australia’s national interest as he was asked to do so.

Instead of abandoning this folly, Morrison has doubled down, readying to announce a process for the further consideration of both policies. The legal scrubbing of the economic partnership agreement is scheduled for completion before Christmas. There must be some risk now that the scrubbing process will go more slowly than expected. Morrison should cut his losses and abandon both flirtations immediately.

At a time when the global rules-based trading system is under its greatest threat since its inception in 1948, Australia should be leading a group of supporters of the World Trade Organisation by proposing ways to preserve and revive it.

New trade minister Simon Birmingham reportedly is doing this, but might lack the necessary standing from only recently arriving on the scene. Nevertheless, he can expect bipartisan support in Australia for his endeavours.

In public policy development the first rule is to do no harm. The Morrison government has breached that rule with its politically motivated flirtation with Donald Trump’s foreign policies. While the midterm US elections are likely to cement in place a protectionist Congress, regardless of whether the Republicans or Democrats do well, at least the Australian government is likely to remain steadfast in resisting the tide of American protectionism.

Craig Emerson is managing director of Craig Emerson Economics and adjunct professor at Victoria University’s College of Business. He was Australia’s trade minister, 2010-2013.

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