Contributed by Joe Montero

Treasurer Jim Chalmers is about will deliver an early budget next week and has kicked off by   admitting that a prospect of trade war initiated by Washington will be a problem for Australia. He gages this by suggesting that the impact will be “manageable.” Expect the budget to be coloured by this.

Chalmers’s department estimates are that it will knock off 0.1 percent of Australia’s 2029, and then 0.2 percent, or about $3 billion over this time. Such an assumption, of course, is based on guesswork forecasting and reliance on nothing else happening. It seems a lot of it is being attributed to the direct impact of falling sales of steel and aluminium to the United States. This is part of it but not all.

The EOCD has revised Australia’s prospects to add another 0.7 percent fall in GDP, taking it down to 2.4 percent. This is significantly worse than Chalmers’s prediction. The OECD, which represents the western economies, has warned that if trade war, “if sustained,” will hit global growth and raise inflation. Both are already heading in the wrong direction.

Donald Trump’s new tariff regime is really a trade war waged against many other countries, as a key means to reinstate American dominance over the global economy.

Photo from Skye TV: Donald Trump

Regrettably, the reality is that this trade war will have a multifaceted negative impact on the global economy and Australia, and the damage stands to be significantly greater than admitted by the Treasurer.

There are two aspects to this war. One is the consolidation of supremacy over the west, and especially traditional allies like Australia. The aim to push these nations to pay a greater share of the cost by making their exports more expensive and American imports cheaper, to give them a competitive edge.

The second and most important, is that this is a war primarily waged against China, and secondly, other economies not in Washington’s orbit, through political and potentially military pressure to gain political objectives. Not a wise move, because a weakened United States is already causing a counter reaction, and this ius likely to intensify soon.

And if Australian governments continue with the all the way with the USA attitude, chances are that it will have an impact on Australia’s trade with China. It may even cause the loss of other markets, given that most of the world, is now moving away from American dominance. All this will reverberate through the Australian economy so dependent on exports.

Make no mistake. Australian governments are aligning themselves with a diminishing influence contrary to global trends. The United States faces economic and technological competition from various countries, prominently China, but also other emerging nations.

Trade war will cut back economic activity, joining this to other pressures facing the global economy. Global GDP is being pressed down, and we don’t know how far this will go.

Even more important is that the United States economy faces going into ongoing recession and high inflation. Tariffs, because they are a tax on Americans, which will translate into higher prices for Americans. The United Sates no longer produces for all its needs and is dependent on imports. Much of this is from the countries being targeted.

Decline in the American economy will flow through to Australia, giving the degree of integration between the two. Theirs is the much bigger one. Wall street investors hold a critical large part of the Australian economy in their hands, and they will make decisions on it according to their own bigger interests, and not Australia’s interests. Economic contraction may soon become the reality.

Avoiding this is possible. It would mean reorienting Australia’s trade relations, a significant decoupling from the American economy, directed new investment into areas of critical need, including the rebuilding of a manufacturing base, and the infrastructure necessary to catch to with the rest of the world.

This is a political decision requiring a government that has the courage to make it