Trump's impact on the Australian Economy

Weaker Chinese economic growth; Weaker Australian economic growth; Higher US inflation; Slower progress towards global net zero emissions; Increase inequality in US

Much will depend on the extent to which Trump is restrained by his picks and the courts. Almost certainly the tariffs will be stiff enough to weaken world trade and growth. Also, the US Gini Coefficient measure of inequality at 0.49 is one of the highest in the OECD countries. Under Trump the rich will get richer, and the poor poorer, and inequality will become even worse than today.

Weaker Chinese economic growth; Weaker Australian economic growth; Higher US inflation; Slower progress towards global net zero emissions

The deportation of 11 million undocumented immigrants will not happen

Weaker US economic growth; Higher US inflation; Slower progress towards global net zero emissions; Security issues

The world can expect first-order effects of these Trumpian policies on higher US inflation and lower national income and employment. We also need to bear in mind that the planned deportation tactics - one of Trump's 3 pillars - do not appear to have been carefully worked out. They will no doubt face challenges through the Supreme Court, will be expensive, and could take a long time to implement. There are also possible second-order trade effects as China reacts to the US. How will this affect us? The US is not Australia's major trading power and we still have other countries to trade with, including China, Japan and the EU. Since China is an important trading partner for us, we should maintain a diplomatic and measured distance from both the US and China. What about climate change? When the US pulls out of the Paris Agreement, climate change globally will worsen, sea levels will rise faster, and there will be more refugees displaced from low-lying countries, exacerbating global tensions and insecurity, and necessitating costly recovery costs.

Stronger US economic growth; Weaker Chinese economic growth; Stronger Australian economic growth; Higher US inflation; Slower progress towards global net zero emissions

Stronger US economic growth; Stronger Australian economic growth

Weaker Chinese economic growth; Weaker Australian economic growth; Higher US inflation; Slower progress towards global net zero emissions

While these policy changes may spur US economic growth in the short term (and even that is uncertain), the long-run effects on US institutions, US governance, the international regulatory framework and the planet's climate are worrying and likely negative and large.

Weaker US economic growth; Weaker Chinese economic growth; Weaker Australian economic growth; A weaker US dollar; Higher US inflation; Lower US interest rates; Slower progress towards global net zero emissions

Most of the discussion so far has focused on the effects of protectionist policies and the risk of trade wars. I do not believe there is too much to add to that apart from highlighting the adverse impact this will have on Australian agricultural exports. Hence, Australian agricultural exporters will need to be proactive in diversifying their markets. The proposed tax plan is clearly reminiscent of trickle-down economics, which often in the past have proved to be often ineffective (at best). But the point that I really would like to highlight is the relationship between the Administration and the FED. If Trump's administration starts to push for a more direct control over monetary policy, compromising the independence and autonomy of the FED, then I expect lower interest rates in the US and a weaker US dollar, which - among other things - would further disadvantage Australian exports to the US.

Weaker Chinese economic growth; Weaker Australian economic growth; Higher US inflation; Higher US interest rates; Increased financial market volatility

Trump is pro (US) growth and lower immigration, and I think that is what he will drive for with policy changes as needs be, which suggests to me the most likely outcome is higher inflation and interest rates. A return to protectionism creates more headwinds for global growth, including for trade-dependent economies like China and Australia.

Weaker Chinese economic growth; Weaker Australian economic growth; A weaker US dollar; Slower progress towards global net zero emissions

Weaker US economic growth; Weaker Chinese economic growth; A stronger US dollar; Higher US inflation; Lower US interest rates; Slower progress towards global net zero emissions

With a lower population (due to mass deportations), higher prices due to tariffs, and difficulty attracting capital (due to cutting out Chinese investment) I expect lower US growth. A less competitive US will have a stronger dollar, making it difficult for US exporters. Implications for Australia are unclear but could potentially be positive if students and tourists from China and other countries tilt towards Australia over the US. The economics of Trump matter much less than the social implications of having the American public choose a convicted felon and sexual abuser as president. With this vote, the American public has effectively said "it's ok to falsify business records" and "it's ok to be a sexual abuser".

Weaker Chinese economic growth; Weaker Australian economic growth; Higher US inflation; Slower progress towards global net zero emissions

This sounds like the typical economist answer, but some of the effects will be different in the short to medium term, than what I expect in the long term. In the short term, we may seem a stronger dollar, in the long term that is (at best) undetermined. In the short term, we may see some growth in the US, in the long term (if all of the agenda is implemented), I find that very unlikely, and I expect a weaker economy (particularly if we see follow-through?on the mass deportations). Interest rates are another interesting question. I don't see immediate changes, and then it's a question of to what extent Trump will influence the setting of interest rates directly (or manipulate the data collection and analysis). A lot of uncertainty in this 2nd Trump presidency - more than in the first, in my eyes. That is never good for the economy.

Stronger US economic growth; Higher US inflation; Higher US interest rates; Slower progress towards global net zero emissions

The Trump company tax cuts will be easy to implement and will be economically expansionary and inflationary. China has been diversifying its export markets and is now far less reliant on the US. That should limit any impacts of Trump tariffs on the Chinese economy and flow-on effects to Australia. US withdrawal from the Paris Agreement will encourage some countries to slow their decarbonisation processes but is unlikely to lead to other countries withdrawing outright.

Stronger US economic growth; Weaker Chinese economic growth; Slower progress towards global net zero emissions

The extra tariffs on China may contribute a bit to lowering China's growth rate, though that will happen on its own anyway. Cutting red tape, moving away from an income tax regime towards a consumption tax regime (which is what the combination of the income tax reductions and the tariffs do), and reducing the net-zero nonsense while lowering the price of energy should all be predicted to help US growth in the short to medium term, although one hopes for a return to freer trade settings after some time so as not to hold back the economy from the international frontier in the longer run. Other effects on the things mentioned in the list above may well result, but due to the complexity of the dynamics involved and uncertainty about the timing of different interventions, I am not confident enough to name net effect directions.

Weaker US economic growth; Weaker Chinese economic growth; Weaker Australian economic growth; Higher US inflation; Lower US interest rates; Slower progress towards global net zero emissions

I am very uncertain about my answers. Key areas of imperfect information include details and magnitudes of the Trump 2.0 policy changes, including tariffs and other trade restrictions, immigration, and government taxation and expenditures; policy reactions of key global trading nations to the Trump 2.0 policy changes; economic decisions responses of businesses and households across the globe; and other structural changes, including political. For the US economy, policy uncertainty, reductions in migration and required structural changes are likely to have adverse effects in the short- and medium-terms on aggregate US economic growth while adding inflationary pressures. Higher inflation, if realised, will slow down the reduction of US interest rates. A reduction in international trade will have negative effects on longer-term productivity growth associated with the exploitation of differences in comparative advantages across countries and the loss of some economies of scale and scope. The adverse effects are likely to be larger in magnitude for a small economy like Australia than for large economies, including the US and China. For Australia, restrictions to global trade and exchange rate adjustments will require some restructuring of the economy. The adjustment processes in a more uncertain environment are likely to involve short-term losses of real income and additional inflation. The Trump 2.0 policy proposals include reduced incentives for renewals, restoration of support for fossil fuels, and weaker support for a binding global agreement to reduce carbon emissions. Some other countries are likely in response to tone down their commitments to reduce carbon emissions.

A stronger US dollar; Lower company tax rates worldwide; Slower progress towards global net zero emissions

Slower progress toward achieving global net zero emissions will pose a significant challenge for the world. Additionally, heightened uncertainty is likely to complicate international cooperation, making it harder to reach agreements. The challenge lies not only in the actual outcomes of a Trump Presidency but also in shaping global expectations. People's beliefs about what is likely to happen can influence their actions and, ultimately, the outcomes themselves.

Weaker Chinese economic growth; Weaker Australian economic growth; A stronger US dollar; Higher US inflation; Higher US interest rates; Slower progress towards global net zero emissions

The big question is tariffs. Are they a (credible since Trump is ?volatile?) threat point for bargaining? Or will he just enact them? The latter would be very bad for all countries including the US.

Weaker US economic growth Weaker Chinese economic growth Weaker Australian economic growth A weaker US dollar; Higher US inflation; Slower progress towards global net zero emissions

Trump has claimed he will deliver on his promises, but some will be more difficult to achieve than others. On tariffs, there is little doubt that the proposal will be inflationary if played out in full. Peterson Institute modelling also shows significant negative growth impacts for China and Australia. Undocumented migrant workers have played an important role in US labour markets for decades, particularly post-pandemic. Attempting to remove 11 million workers will likely create some shortages, albeit largely in unskilled sectors, which could still put pressure on wages and/or reduce output in sectors such as agriculture at the margins. A perceived lack of independence of the US Federal Reserve, as threatened, would create financial market jitters, raise interest rates, weaken the dollar, and reduce foreign investment. The less immediate but longer-lasting impact of withdrawing support for climate action and increasing fossil fuel production will be in the trillions. Geopolitical instability, if the US paves the way for Russia to defeat Ukraine and becomes more isolationist, will lead to greater uncertainty, higher risks and lower global investment, productivity and growth.

Weaker US economic growth; Weaker Chinese economic growth; Weaker Australian economic growth; Slower progress towards global net zero emissions

The main concerns about America under Trump are not economic. The really big worries are about the future of democracy in America, about security and geopolitics, and about social and humanitarian damage that will be done. The economic effects will be regrettable. If implemented, the US policy measures will hurt the US economy. They'll also slow growth elsewhere, through trade and possible emulation of isolationist policies. Climate change efforts will obviously be set back in the USA, and there will be a chilling effect on climate policy action globally. But the effect might not be as great as one might think. In the US as elsewhere, clean energy transition is underway regardless of federal policy, and government support for emerging green industries will be difficult to remove. A number of US States will pick up some of the policy slack. In other countries, governments that are against climate action will find Trump a convenient excuse. Others will fill the international leadership gap and strive to seize clean economy opportunities. That can include Australia.

Weaker US economic growth; Weaker Chinese economic growth; A weaker US dollar; Higher US inflation; Slower progress towards global net zero emissions

The modelling that I have seen by the Petersen Institute for International Economics suggests that Australia will not be much affected by Trump's policies one way or the other. I didn't answer the question on US interest rates because I think we cannot know the answer. Trump's policies will lead to higher inflation and so if it is left to the central bank then interest rates will be higher, but Trump is on record as saying he should be able to over-rule the central bank.

Stronger US economic growth; Weaker Chinese economic growth; Weaker Australian economic growth; A stronger US dollar; Higher US inflation; Slower progress towards global net zero emissions; Pressure on US allies to improve the quantity and quality of their defence spending

China, Japan and South Korea are our biggest customers. They face reduced exports to the US, especially of cars. They can be expected to reduce their purchases of Australian minerals. The US may demand more minerals but these will tend to come from either the US itself, Canada or Brazil. The actual tariff hikes may end up being more moderate than what has been announced up to this point, but should still be hefty. Alas, the costs of tariffs are borne disproportionately by small countries.

Stronger US economic growth; Lower US inflation

John Cochrane has recently commented that only "The Vibe" of Trump's Program can be gained from Trump's Campaign rhetoric. I think the best simplest policy guide is in Peter Navarro's book "The New Maga Deal'" which was released at the Republican convention. I refer to pages 26 to 29 of that book. It is apparent that Trump's remark about "Big Beautiful Tariffs is merely the opening bid in a bargaining strategy conducted under a foreshadowed 'US Reciprocal Trade ACT' (USRTA)". Navarro says that 132 countries have higher tariffs on American products than America charges them for the same product. The strategy is to cajole other countries to lower their higher nonreciprocal tariffs to US levels. Should they refuse to do so then the US will raise American tariffs on their products to the same level that they charge on American products. Navarro notes "Either way, far more fair, reciprocal, and balanced trade under the USRTA would create hundreds of thousands of new jobs while strengthening or manufacturing and defence industrial base" Navarro says that analysis done in the Trump Whitehouse by the Office of Trade and Manufacturing Policy "if all 132 countries were to lower their higher nonreciprocal tariffs to US levels, this would reduce the overall US trade deficit by almost 10 per cent." In contrast, if these countries were to refuse to reciprocate and the United States were to raise its tariffs to mirror those countries level, the reduction in the US trade deficit would be of similar magnitude."

Weaker US economic growth; Weaker Chinese economic growth; Weaker Australian economic growth; Higher US inflation

Taken at face value, I believe Trump's proposed policies will act like a negative supply shock to both the US and Australian economies. We will likely see higher inflation due to higher tariffs and increased production costs and slower economic growth as consumers and businesses adapt to higher prices and disrupted supply chains. The tax cuts might boost spending in some sectors in the short-term, but the longer-term effects of higher future taxes are likely to offset this. I would expect the Australian economy to slow due to the sum of these forces. Australian exports will be hit by the higher tariffs, both directly and indirectly through global supply chains. Higher tariffs on Chinese goods and other US imports will lead to global price increases, particularly in sectors reliant on Chinese production, such as electronics, machinery, and consumer goods. As the US reduces imports from China, demand could shift to other markets, potentially driving up global prices for goods that Australia also imports and lead to imported inflation in Australia.

Higher US inflation; Higher US interest rates; Slower progress towards global net zero emissions

Slower progress towards global net zero emissions

Trump?s policies are likely to have large effects on the world, economy, politics and society. Limiting an analysis of any future US policy to its economic impact, may not be in Australia?s best interest, particularly in the face of political and cultural challenges to climate change abatement, the future of bilateralism and the declining US hegemony in the Asia Pacific. It might be worth to consider Ross Garnaut?s reflections on how to minimize the damage. Events may force us to rethink our foreign policy, having in mind the need to find broader coalitions in our region and globally to counteract US declining relevance. From a strictly economic viewpoint, tariffs of 10-20% (and much higher in the case of China), even temporarily adopted, will negatively impact US inflation, wages, employment and growth prospects. These effects are likely to be only partially offset by the aggressive pro-business policies of the Trump administration, particularly its deregulation of fossil-fuel production activities. Whether these effects will amount to a US stagflation or rather not, they will likely produce considerable uncertainty globally and possibly upward pressures on the US interest rate, further slowing other economies? return to investment-friendly interest rates. Australian trade with the US is limited, but protectionist policies can trigger trade wars and may indirectly impact Australia via the global production networks it participates in. Australia will need to exercise initiative and leadership to prevent trade wars escalating. Australia will need to continue its renewed commitment to regional development, by supporting a robust dialogue with regional partners to ensure that trade policies are designed to widely share the commitment to decarbonize and reduce the impact of climate change. A renewed commitment to regional development and cooperation in the Asia-Pacific region and other parts of the world would ensure that any negative impact of Trump?s tariffs is balanced out by positive outcomes resulting from such a commitment to regional development. Commitment to regional partnerships and development would lessen Australia?s need to invest in defense and enable wise investment to address domestic challenges including housing, education, industrial diversification and climate change.

Weaker US economic growth; Stronger Chinese economic growth; Stronger Australian economic growth; Higher US inflation; Higher US interest rates; Lower company tax rates worldwide; Slower progress towards global net zero emissions

Raising US tariffs, especially on China is one of the most likely policies to be implemented. For a mature economy like the US, this will damage US trade and promote US inflation, especially given the level of Chinese ownership of capital and infrastructure in the US. The Australian economy is likely to benefit through increased markets for its trade including China and Europe, and also through higher prices for its exports, insofar as US tariffs change the world price. Hopefully, Australia will increase its links with China and the Asian and European regions and move away from its obsequious and damaging relationship with the US.

Weaker Chinese economic growth; Weaker Australian economic growth; A weaker US dollar; Higher US inflation; Higher US interest rates; Slower progress towards global net zero emissions

I thought I'd never have to discuss the economics of tariffs again. Yet here we are. If President-elect Trump introduces the tariffs he has promised?along with tax cuts?the U.S. economy may see short-term growth but at the cost of higher inflation. However, this growth would not be sustainable. Even if we set aside the likelihood of retaliatory measures from U.S. trade partners, tariffs inevitably lead to an inefficient allocation of resources, which will ultimately stifle economic growth. The negative impact of U.S. tariffs would ripple through the global economy, first affecting China and then Australia and other trading partners. Moreover, these measures will undermine the international trade system that the U.S. itself has helped build and sustain over decades. This weakening of global trade institutions would diminish the U.S.'s economic and political influence on the world stage. From an environmental standpoint, a U.S. withdrawal from the Paris Agreement and a reversal of progress toward net-zero emissions would push us closer to catastrophic climate outcomes.

Weaker US economic growth; Weaker Chinese economic growth; Weaker Australian economic growth; A stronger US dollar; Higher US inflation; Higher US interest rates; Lower company tax rates worldwide; Slower progress towards global net zero emissions

Stronger US economic growth; Weaker Australian economic growth; A weaker US dollar; Lower US interest rates; Slower progress towards global net zero emissions; Massive decline in immigration; decline in social cohesion in the United States

The stronger economic growth is premised on the assumption that this growth will be driven primarily by the initiatives introduced by the Biden administration and that these initiatives will not be dismantled.

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Commentary suggests that a Trump presidency may, over the next four years, see stronger US economic growth and higher US inflation underpinned by numerous changes that, if enacted, will boost aggregate demand. Inflationary pressures may also arise stem from likely skills shortages, particularly related to the termination of work permits for illegal migrants and policies designed to send women back into the home. The Trump reforms can be expected to have a chilling and harmful effect?on diversity, equity, inclusion and economic growth. Trump?s misogyny and disrespect for women will see the clock wound back on women?s rights and violence against women can be expected to increase. The setback will be immense and will have considerable flow-on effects, affecting decisions from fertility through to education and work. Women are a significant part of the labour market and women?s empowerment is important for economic development. The concerning part is that the changes that will eventuate in the USA will not be confined to the USA. Initiatives designed to hurt China will hurt Australia. Initiatives that hurt American women will hurt women globally. The Andrew Tates and Joe Rogans will feel empowered and their extremist, homophobic, misogynist and racist views will spread to more and more young men. Trump?s backward policies should be a concern for us all. It is hard to say what the economic cost of the retrograde policies concerning women will be, but it is safe to assume that they will be in the billions.

Makes AUKUS a worse deal than before

The end of US democracy will have more profound implications than changes in economic policy, though it is hard to say what these changes will be.

Slower progress towards global net zero emissions; Significant supply chain disruptions and the consequent impact on the global value chain.

Predicting the global economic outlook based on the actions and agendas of the next US president is challenging, as President Trump is perceived to be unpredictable. What is certain, though: 1. The global economy is moving towards an uncharted economic and political landscape 2. There will be significant regression in climate action plans 3. Global supply chains will experience substantial disruptions, considerably affecting the global value chain What does this mean for Australia? Australia's trade exposure to the US is comparatively less than its trade relationship with China. During the COVID-19 pandemic, despite trade tensions between China and Australia, the overall impact on the Australian economy was not as disastrous as expected. Australia managed to navigate through that uncertain environment relatively well. Similarly, in the short term, the threat of US import tariffs may not lead to catastrophic outcomes for Australia. Nevertheless, the Trump presidency has instilled a sense of nervousness in the Asia-Pacific region, including Australia. Countries in this region find themselves caught between two economic giants? the US and China, where the trade, economic, and political relationships with these superpowers are critical. It will be interesting to observe how the leaders of these countries utilise their skills to navigate this challenging environment. For Australia, while the initial impact of trade disruptions may not be felt significantly, the short to medium-term effects are likely to manifest more through third-party effects due to its engagement with China and other countries in the Asia-Pacific region.

A stronger US dollar; Higher US inflation; Slower progress towards global net zero emissions; Uncertainty and volatility

The level of uncertainty is so high that any prediction is no better than a coin toss. At this point in time we have information on some of those that will be nominated to lead specific portfolios. In addition, there are plans to shrink the size of the workforce employed by the federal government and carry out mass deportations. Depending on how well the administration is able to work with Congress (even when Republicans have a majority in both houses, there are no guarantees), the extent and speed of changes are very hard to predict. Assuming some of the changes are promptly implemented, they could bring a sizeable shock to the US economy at least in the short term. If there are workforce shortages in areas such as horticulture, some key service sectors and/or the construction industry for example, domestic prices could rise bringing inflation. How the administration handles such a scenario will be key. Mr Trump might see this as a failure of those who have been appointed instead of the policies of his administration, which could lead to the return of the revolving door that characterised his first term as president. Inflationary pressures could then make the Fed react by increasing interest rates. In a recent opinion piece in The New York Times, Paul Krugman argues that the world is already in a trade war (China continues to aim for very large trade surpluses, and thus the Biden administration kept Trump's tariffs on China, while the European Union has imposed tariffs on EVs manufactured in China). Thus, the incoming president is unlikely to cause a new trade war; however, by imposing tariffs across the board, the US administration could end up hurting US business. I found his argument compelling. Progress towards global net zero emissions is unlikely to stall; however, it is likely that it will slow down.

Weaker US economic growth; Weaker Chinese economic growth; Weaker Australian economic growth; Higher US inflation; Higher US interest rates; Slower progress towards global net zero emissions; Worsen economic inequality in the US

Stronger US economic growth; Stronger Chinese economic growth

My comments below focus exclusively on the prospects for growth in the two largest and most consequential economies in the world today, the United States and China. The answer to all manner of other questions, including those named above, will depend very much on how the rest of the world responds to the resolution of these two questions. My own answer to these two questions is that the successful implementation of President-elect Trump?s economic agenda will result in stronger and more sustainable growth in both the United States and China. This answer rests on certain assumptions on the theory and practice of international trade which are detailed below. But it also rests on certain assumptions on US politics which, if falsified, would render the answer moot. I therefore begin with US politics. In [my 1 November lecture](https://cdn.theconversation.com/static_files/files/3536/Rana_Roy_01-11-2024.pdf?1731975473) to the Athenaeum Cub, Hobart I predicted inter alia that the Trump-Vance ticket would win the Electoral College, by 312 to 226, and also the national popular vote, and that the Republicans would win both the House of Representatives and the Senate. These predictions were embedded in a larger thesis on the irreversible decline of the Democrats as a ?natural majority? party and the likelihood of the rise of the Republicans as the new ?natural majority? party ? and a set of metrics against which this larger thesis could be tested. The results of the 5 November elections have now confirmed these headline predictions (see Slide 3), the detail thereof (Slides 9 and 10), and also the Republicans? progress against those metrics that can be tested as at today (Slides 26, 29 and 30). I therefore conclude that President-elect Trump now has both the mandate and the means to implement his ?America First? economic agenda and will indeed proceed to do so ? and, furthermore, that the newly ascendant Republican Party will have the opportunity to progress this agenda beyond 2028. Insofar as it relates to the prospects for economic growth, over the next four years and also over a longer time horizon, the core of this agenda, as I understand it, consists in the policy set itemised in Slide 28: (1) the re-industrialisation of the US economy through the on-shoring of manufacturing production; (2) the re-direction of capital and labour away from unproductive and toward productive sectors; (3) and innovation and investment aimed at building a high-productivity, high-wage path of development. Admittedly, the above is not quite how the matter has been described in campaign speeches. But it has been communicated clearly and coherently enough by Trump?s economic advisers, often in long-form interviews and round-table discussions involving high-profile business leaders, including many former Democrats, who had supported the Trump campaign (Elon Musk, Vivek Ramaswamy, Bill Ackman, David Sachs, et al.). Of the three policy items named above, it is the first ? the use of tariffs and related measures to elicit an on-shoring of manufacturing production and therewith a substantial re-industrialisation of the economy, reversing a multi-decade trend of de-industrialisation as a result of off-shoring ? which has featured most prominently in public debate, both in the United States and elsewhere. It has also been the most misunderstood. My argument below therefore focuses primarily on this first item and only secondarily on the others. For many a decade, and with only a few notable exceptions (see for example Harvard?s Dani Rodrik), most economists of all persuasions have preached the virtues of ?free trade? and denounced the dangers of ?protectionism? as a universal rule, irrespective of the circumstances of any given case. The adoption of tariffs by the first Trump Administration, and then by the Biden Administration, has been something of a shock to most economists ? who continue to this day to regard this as an act of self-harm. Now I yield to none in admiring the elegance of David Ricardo?s demonstration of the law of comparative advantage. In his two-country, two-sector model, England would indeed gain by specialising in the sector in which it was least-worst, Portugal would indeed gain by specialising in the sector in which it was most-best, and the result would indeed be a win-win. However, this model rests on certain definite assumptions, including full employment of the factors, immobility of capital between countries, and the absence of wage disparities between countries for any internationally mobile capital to exploit. And these assumptions do not hold in the real world. Recognising that this is so does not diminish the value of Ricardo?s law, either as a guide to research or as a guide to multilateral efforts to move toward a Ricardian equilibrium over an appropriately lengthy time horizon. But it does mean that, in the non-Ricardian world in which we live, the question of whether the imposition of tariffs by any given country in any given case is beneficial or harmful to it cannot be determined a priori ? it can be determined only by examining the case in question. As is [shown here (Table A2)](https://www.imf.org/en/Publications/WEO/Issues/2024/10/22/world-economic-outlook-october-2024), the record of the last eight years belies the many predictions of doom on the issue of tariffs. Over the ten-year period from 2006 to 2015, the US economy grew at a rate of 1.6 per cent per annum. Thereafter, in each of the eight years from 2017 to 2024, with the single exception of the ?COVID? year of 2020, it surpassed its previous performance, never falling below 2.5 per cent per annum. Nor was this the result of surfing a wave of growth across the ?free-trading? world: US economic growth outpaced the average of the IMF-defined ?advanced economies?. Approaching the question scientifically rather than dogmatically, anyone can see in US economic history lengthy periods in which the country flourished under a tariff wall as well as periods when it suffered from tariffs, and lengthy periods in which it flourished under a free trade regime as well as periods when it suffered from free trade. In the course of the nineteenth century and the first two decades of the twentieth, the United States built a modern industrial economy under a high tariff wall, overtaking Great Britain to become the world?s leading economy. But raising the tariff wall in 1930 helped to trigger a tit-for-tat trade war across the advanced economies, deepening the Depression, and harming all players, including the United States. In the post-war world, the US economy, now the leading economy by far, benefited from the resumption of world trade and the steady, step-by-step, multilateral reduction in trade barriers. But then came the period at issue here: the period preceding the US elections of 2016. This period of deliberate and large-scale off-shoring of manufacturing jobs to China and other emerging economies had nothing to do with Ricardian comparative advantage. Rather, successive US governments ? under Bush Snr., Clinton, Bush Jnr., and Obama ? aided mobile US capital to move into China and other emerging economies so as to exploit the vast wage disparities between US workers and emerging-economy workers. [One result](https://cepr.org/voxeu/columns/china-worlds-sole-manufacturing-superpower-line-sketch-rise) of this process is that China?s share of world manufacturing output climbed from 5 per cent of the total in 1995 to 35 per cent by 2020 whilst the US share declined from over 20 per cent to 12 per cent. The rest of the G7 fared worse, with its share reduced by half over the period in question. And within the manufacturing sector as a whole, [much the same result](https://www.oica.net/category/production-statistics/2023-statistics/) obtained in the economically (and electorally!) critical car industry. As of 2023, China?s share of world automotive output stood at circa 32 per cent, the US share at circa 11 per cent. But this result per se ? the answer to whether the United States or China ranks first in global rankings of manufacturing output or automotive output ? was not, and is not, a critical concern for the multi-racial working-class coalition that has just voted President Trump back into office, including in the car industry?s home state of Michigan. What is critical is the deindustrialisation resulting from off-shoring ? and the many and varied consequences thereof. Such are: the movement of labour from high-wage manufacturing jobs to low-wage service-sector jobs; the movement of capital away from a now contracted manufacturing sector; the compression of wages in the manufacturing sector as a result of these twin movements; the massive decline in the share of income and wealth accruing to the bottom 90 per cent of the American people, as the original consumer-surplus gains from cheaper imports are converted into income and wealth gains at the top (see Slide 17); the atrophy of technical skills over time as former industrial workers, managers, and planners disperse far and wide or simply die out (witness the sheer inability of US industry to expand capacity to increase the output of 155mm artillery shells to the levels requested by the Biden Administration); the cultural devaluation of manual work and manual workers (witness the odious superciliousness with which certain ?educated? commentators in the media blamed ?uneducated? voters for the election results ? commentators who had exposed the quality of their own ?education? by believing Ann Selzer?s now-infamous [Iowa poll](https://newcriterion.com/dispatch/statistical-questions-about-the-iowa-poll/). This is the long-term economic trend that Americans have voted to reverse; this is the self-harm that Americans have voted to cease. Is it feasible for the United States to dislodge China from its leading position in world manufacturing output as a whole and to reclaim that position for itself? No, it [is too late](https://cepr.org/voxeu/columns/china-worlds-sole-manufacturing-superpower-line-sketch-rise). But such an aim, if it is anyone?s aim, is irrelevant to the economic agenda under discussion. Is it feasible to achieve a substantial measure of re-industrialisation through large-scale on-shoring? Yes ? and the United States has already commenced this task. The means to be employed have been spelled out: expanded use of the Trump-Biden tariffs, and the deliberate use of taxes and tax breaks to elicit the movement of internationally mobile capital, both US capital and foreign capital, into US industry. This economic agenda does not require any futile attempt to collapse Chinese manufacturing; it is rather a matter of capturing an already-collapsing manufacturing base in the rest of the G7. Germany is a case in point. The crown jewels of German industry ? cars, chemicals, engineering ? are under severe, seemingly irreversible pressure. German capital is looking to move to new homes. And the two new homes at which it is looking are China and the United States. The second item in the set identified above ? the re-direction of capital and labour away from unproductive and toward productive sectors ? overlaps with the first but extends beyond it. The larger ambition here is to lift Americans into ?high-wage? employment in manufacturing and related sectors (minerals, energy, etc.) and also into ?higher-wage? employment in ?advanced manufacturing?, high technology, the space economy, expanding the niches in which the United States commands the technical frontier. Here too the means to be employed, in the first instance, have been spelled out: a downsizing of the Federal Government, to be detailed by the new commission led by Elon Musk and Vivek Ramaswamy. Musk has suggested a potential cut of USD 2 trillion, or circa 30 per cent of the current Budget. If achieved, this would entail a substantial release of financial and human resources for redeployment in the productive economy. The third policy item ? investing in a high-wage, high-productivity growth path ? is an issue I have addressed on multiple occasions on this platform as well as others. In part, it involves a market-driven ?virtuous cycle? of rising wages triggering higher productivity to underpin the new and higher wage rates ? a cycle first identified by Karl Marx precisely in reference to the US economy and formalised much later by Sir John Hicks. In part, it involves a range of interventions by the government in research and development, the regulatory regime, et cetera. What is relevant here is that these things were and are very much part of the debate preceding and surrounding the US elections of 5 November: for example, in the roundtable discussions to which I alluded earlier. Perhaps the best glimpse of these overlapping policy items on President Trump?s agenda ? to those who are prepared to look past the occasional party-political rhetoric as well as the commercial at the end of it ? is to be found in a short-form interview with Bill Ackman on the [Megyn Kelly show](https://youtu.be/RY-bUHfmqV0). To conclude: the United States possesses both the resources and the resourcefulness to renew itself. As shown earlier, it remains in clear second place in world manufacturing and world automotive manufacturing. It also remains in clear second place in its share of world GDP: at 15 per cent, just below China?s at 19.1 per cent, above India?s at 8.2 per cent and above Russia?s at 3.6 per cent. As for the rest, they are either in a long-term decline, with growth rates below the world?s four leading economies, or else in a long-term ascent which will take many more years to reach the heights of the leading four. [See here](https://www.imf.org/en/Publications/WEO/Issues/2024/10/22/world-economic-outlook-october-2024) ? Box A2, Table A2.1; Table A2; and Table A4. I turn now to my second claim: that President Trump?s economic agenda will result in stronger and more sustainable growth in China. If this claim turns out to be true, I suspect that the Trump Administration may not be altogether pleased with the result. Nonetheless, I am assuming that any such displeasure will not derail the new economic agenda ? so long as that agenda delivers the outcomes they seek for the United States. The rationale for my claim is simple. China?s economic challenges are in many ways the mirror image of America?s economic challenges. A stylised picture would look something like this. In the United States, we find a massive trade deficit, insufficient investment/excessive consumption, and an insufficient focus on manufacturing. In China, we find a massive trade surplus, excessive investment/insufficient consumption, and an excessive focus on manufacturing. Hence, the requisite correction in one country runs parallel to the requisite correction in the other: the two corrections do not collide. This stylised picture does not tell the full story nor does it pretend to do so. Thus, Richard Baldwin is [right to note](https://cepr.org/voxeu/columns/china-worlds-sole-manufacturing-superpower-line-sketch-rise) that ?China?s GGR [Gross Globalisation Ratio, the exported share of manufacturing output] has been falling steadily. And don?t miss the fact that it is, in 2020, not far above where it started in 1995. Chinese manufacturing, in short, is no longer as dependent on exports as many might believe.? On the other hand, as shown in [more recent IMF data](https://www.imf.org/en/Blogs/Articles/2024/09/12/trade-balances-in-china-and-the-us-are-largely-driven-by-domestic-macro-forces), China?s current-account surplus as a share of GDP, aka its ?dependence on exports?, has soared anew since 2020. The IMF analysis serves to confirm my above point that China does indeed have a set of imbalances to correct, a set that is in many ways a mirror to the set of imbalances in the United States. Unsurprising, the IMF would prefer this correction to be conducted multilaterally rather than by way of ?[unilateral responses through tariffs](https://www.imf.org/en/Blogs/Articles/2024/09/12/trade-balances-in-china-and-the-us-are-largely-driven-by-domestic-macro-forces)?. But the outcome might well be the same. The key point here is that the Chinese leadership has repeatedly recognised the need to correct these imbalances ? they do not wish to see China deliver up its labour in exchange for US Treasuries until the end of time ? but have been derailed by events again and again. It is therefore plausible to suppose that they might look upon a new round of US tariffs as an opportunity rather than a threat, accept a fall in China?s current account surplus, and permit the Chinese people to enjoy a greater share of the fruits of their labour.

Stronger US economic growth; Weaker Chinese economic growth; Weaker Australian economic growth; A stronger US dollar; Higher US inflation; Higher US interest rates; Lower company tax rates worldwide; Slower progress towards global net zero emissions

The Trump agenda is epic by design but hard to achieve. There is significant uncertainty about outcomes over the four-year term. Though the Republican Party will have political control, expect severe internal competition for Trump?s ear from lobbyists with very different agendas. Stock markets will act as probably the most effective constraint on the Trump administration?s more outlandish ambitions. The Trump/Musk deregulation plans are intriguing though unrealistically aspirational. Any success in eliminating entrenched government inefficiencies will boost US growth, but the more populist attacks will risk unintended consequences. Tariff wars are sure to escalate, leading to a stronger US dollar. The countries suffering the greatest pain will be China, the EU and Mexico, with the last also heavily impacted by the very restrictive plan for migrants. Labour markets will tighten, and wage-push inflation will challenge the FED. Fiscal deficits are more than likely to worsen, given the planned company tax cuts and expenditure hikes, and will put even more pressure on interest rates. The planned slashing of existing environmental policies will reduce US energy costs and make her manufacturing more globally competitive. But it will obviously negatively impact global plans for net zero transformation. Australia may escape any direct Trump effects if it continues to be seen by Trump as an economic ?ally?, but it will definitely feel some of the pain of China and other Asian economies.

Weaker Chinese economic growth; Weaker Australian economic growth; Higher US inflation; Higher US interest rates; Slower progress towards global net zero emissions

At this stage, it is far too early to confirm the extent and detail of future US economic, trade and environmental policy. If all of Trump's proposals are enacted however, then well-regarded economic modelling (e.g. Prof Warrick McKibbin at ANU in Australia and the National Institute of Economic and Social Research in the UK) indicates US policies would substantially reduce trade volumes, national income and output for US-friendly countries including Australia and the UK, while increasing inflation and interest rates globally. Geopolitical and social policy changes in the US could add further, more complex impacts. How much of Trump's policy program is just electioneering, puffery and ambit claims? How much will be enabled by the US House and Senate? What is the likely timetable? We just don't know. No matter the detail and timing of Trumponomics however, we will see a rise in global economic isolationism, uncertainty, risk and volatility. Interesting times ahead.

Weaker US economic growth; Weaker Chinese economic growth; Weaker Australian economic growth; Higher US inflation; Lower company tax rates worldwide; Slower progress towards global net zero emissions