‘Wouldn’t be immune’: Warning on trade tensions

Australia would be vulnerable to global trade tensions sparked by US president-elect Donald Trump’s floated trade policies, Jim Chalmers will tell a leading foreign policy think tank.

The Treasurer is set to address a dinner hosted by the Australian Institute of International Affairs (AIIA) on Monday night fresh off a week dominated by the US presidential election.

Mr Chalmers will tell attendees that Australia’s “most pressing economic challenges are global and that makes economic security a central question,” according to an extract of his speech.

“Economic policy and foreign policy have always been interlinked but now they’re almost indistinguishable,” he will say.

“And in this uncertain world characterised by economic vulnerability and volatility, our foreign policy is a team effort which brings economic benefits.”

Mr Trump’s historic White House win last week has been broadly interpreted as adding to international uncertainty, raising questions about the US’s global economic and security commitments.

In his address, Mr Chalmers will downplay concerns around where Australia would land in a second Trump administration, saying Australia’s “relationship with America under presidents and prime ministers from all sides is strong and enduring” and “built on shared values and interests and deep engagement not partisan or even ideological ties”.

“Of course we expect the incoming US administration to bring a different suite of policies,” he will say.

“And we are confident in our ability to navigate that change, as partners. Nobody should underestimate our ability to make it work.”

Mr Chalmers will say Canberra is “well prepared” and go into modelling carried out by the Treasury.

Treasury chief Steven Kennedy confirmed last week that officials had modelled Mr Trump’s plan to impose blanket tariffs on all foreign imports.

Mr Trump has said he would slap blanket tariffs of up to 20 per cent on all foreign imports in a bid to usher in a new age of American manufacturing.

He has also said he would impose a levy of up to 100 per cent on goods from China, which is considered the main threat to Western economic and military dominance.

Mr Chalmers will say the Treasury’s modelling of the Mr Trump’s tariff plan forecast “a small reduction in our output and additional price pressures, particularly in the short term.”

“But specific features of our economy – like a flexible exchange rate and independent central bank, would help mitigate against some of this,” he will say.

“Globally – the impact was much more substantial. The timing of this, and the responses and ramifications that might follow – what economists call second-round effects – are difficult to predict.

“But we wouldn’t be immune from escalating trade tensions that might ensue.”

Meanwhile, independent modelling has found the levies could cost American consumers up to $80bn.

Mr Chalmers has long noted tough international economic conditions have weighed heavily on the Australian economy.

The price of iron ore has tumbled over the past year on the back of slowing steel demand in China, with fresh projections pointing to a $39bn plunge by the 2025-26 fiscal year.

China’s steel industry has slowed due to its struggling construction and real estate sectors, which make up about two thirds of the country’s total economic activity.

Beijing has tried to counter this by boosting liquidity through greater refinance options, hoping that it would result in more property purchases.

Mr Chalmers will also praise Australia’s ambassador to the US, Kevin Rudd.

The former prime minister has been weathering claims he might not be up to the job because of his past criticisms of Mr Trump.

“Modelling was one part of our preparation; another was the diligent work done in DC,” Mr will say.

“Prior to the US election, Ambassador Rudd helped many of us build and deepen our connections across the political aisle.”

He will say that Mr Rudd introduced him to key financial figures within the Biden administration and Mr Trump’s economic team.

Mr Rudd has called the incoming US president “nuts”, the “most destructive president in history” and a “traitor to the West”.

Mr Trump has called Mr Rudd “nasty” and “not the brightest bulb”.

“If he’s at all hostile, he will not be there long,” the former president said in an interview earlier this year.