IN 2017 I visited colleagues at US law firms to get some ideas of how the first Trump administration (which I will call Trump 1.0) was changing US trade policies and the effect on the US and the world.
I met with several exhausted and sleep-deprived trade lawyers who indicated that there had been little rest since President Trump had formally taken office. Changes to policy were happening at a rapid rate and there was little way to predict further changes. Conventional thinking on trade policy and legal processes offered no answers, so many were reduced to watching public statements to assess new policies.
Hints from Trump 1.0
Trump 1.0 had embarked on a series of international trade initiatives which set it at odds with the (then) current multi-lateral trade liberalisation agenda. That included withdrawing the US from the Trans-Pacific Partnership (now the TPP 11 or Comprehensive and Progressive Agreement for Trans-Pacific Partnership) and the imposition of significant additional tariffs on imports of steel and aluminium with selective exemptions, including for Australian interests exporting to the US.
The introduction of new tariffs was supported on the basis that they protected US national security and intellectual property.
The Biden administration follow-up in Trump 1.0
The subsequent Biden administration did not reverse any of the trade initiatives of Trump 1.0. Indeed, it increased those “national security and intellectual protection” tariffs imposed by Trump 1.0 and introduced more policies to support American interests such as the Inflation Reduction Act. It also failed to enter into any new traditional free trade agreements (FTA) but concentrated more on its strategic global alliances, including ANZUS, the Quad and the Five Eyes network and initiated negotiations for the Indo-Pacific Economic Framework (IPEF).
While IPEF did not fit the usual criteria for an FTA in that it did not reduce tariffs on goods, its “pillars” did advance other trade matters such as trade facilitation and supporting resilient supply chains.
Early harvest on trade developments from Trump 2.0
Even before President Trump has taken office there have already been significant developments.
One of those developments is several celebrity candidates being proposed for senior roles in Trump 2.0. During Trump 1.0, the administration tended to rely on conventional, experienced Republican nominees to lead various agencies. However, those persons who have been nominated to date include several non-conventional persons without traditional government experience. Some of those nominees are recognised as being “China hawks” who will attempt to isolate China and its defence and economic interests.
The US is not withdrawing from the world economy but is seeking to advance its position in it.
Another development is the announcement by President Trump of the proposed implementation of additional tariffs on Chinese, Mexican and Canadian goods from the day after inauguration, notwithstanding the terms of USMCA which would normally preclude the imposition of additional tariffs on Canadian and Mexican goods. These new tariffs were announced because of the alleged failure of those countries to eliminate drugs being smuggled into the US and failures to suppress illegal migration into the US. Presumably that would support the imposition of the additional tariffs on Canadian and Mexican goods due to some form of “emergency national security” basis.
And also, the apparent rapprochement of Chinese and Australian trade relations evidenced by the removal of the remaining Chinese measures on exports of Australian products (lobsters) and the statement by the Chinese ambassador to Australia that he regretted the trade bans previously imposed by China on Australian exports. The ambassador added that China and Australia needed to work together to stabilise and enhance trade in the region due to shared interests and concerns on the proposed actions of the US.
Where to from now?
In the lead-up to the US election, many of the world’s leading financial and trade analysts, economic policy think-tanks and business journalists had been predicting what would happen if Trump 2.0 became a reality. At this stage, a number of those predictions seem to be accurate, and I am sure that other predictions may come true when Trump 2.0 takes office on 21 January 2025.
There will be significant additional commentary and predictions before then, so I thought I should add a few comments myself.
- The US economy was in good shape before the US election, in part due to the economic measures adopted by the Biden administration. None of the measures proposed by Trump 2.0 are likely to significantly enhance the position of the US economy.
- The imposition of additional tariffs on the main trading partners of the US in Canada, China, and Mexico are likely to be counter-productive for the US. Additional tariffs increase the price of goods imported from those countries for US consumers. That could lead to inflationary pressure.
- The actions of the US have been characterised as “isolationism”. I don’t see it that way. The US is not withdrawing from the world economy but is seeking to advance its position in it.
- The entreaties of China to work together to advance common interest may not be entirely convincing to all parties given the recent restrictions on Australian exports to China.
- There have been many observations that President Trump and Trump 2.0 will be “transactional” in nature. At this moment, Australia could be defined as a friendly nation. We are already in several strategic, commercial and trade relationships with the US which are advantageous to the US, although we may need to increase defence spending to US expectations to ensure Australia is seen as worthy of the US relationship.
- Even though we have no confirmation that the US will impose additional tariffs on Australian exports to the US, it may be sound to look at means to increase exports of Australian goods to the US to increase stockpiles against additional tariffs.
- Regional trade arrangements with other trading partners are more important than ever to protect against any reduction in trade opportunities with the US (or trade opportunities influenced by the US).
- Increases in US tariffs for Chinese exports and ongoing adverse economic news from China suggests that China may look to other markets to increase exports at lower prices. One market would be Australia and could lead to an increase in complaints from adversely affected Australian producers regarding alleged “dumping” by Chinese producers or subsidies by the Chinese government.
Ultimately, the best advice would be not to panic but to adopt an “alert but not alarmed” posture, paying attention to commentary from trustworthy sources and draw upon the expertise of national and state agencies in Australia tasked to assist Australian industry.
This article appeared in the December 2024 | January 2025 edition of DCN Magazine
