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By Cameron Cooper

To suggest that the stakes are high in this year’s US election showdown is an understatement. Former chief economist at the World Bank and professor at Columbia University Joseph Stiglitz is not sugar-coating it.

During a recent speaking tour of Australia hosted by The Australia Institute, Stiglitz declared that recent events in the US have shown “it’s very clear that there’s a fragility to our democracy”. He also lamented that an age of inequality has been allowed to grow, providing “a fertile field for populism and particularly for the authoritarian version of populism,” in the form of Republican presidential candidate Donald Trump.

“I don’t think it was inevitable, but maybe there was a high likelihood that somebody like him would arise and present the kinds of problems that we now have.”

Trade tensions

The implications stemming from the duel between Trump and the Democratic Party’s nominee Kamala Harris are clearly significant for Australia, New Zealand and other Asia-Pacific (APAC) nations.

As the world’s largest economy, the decisions made by the US can have economic and geopolitical knock-on effects for its trading partners and enemies. To that end, there are concerns that a Trump 2.0 could trigger a trade war with China.

If the Republicans control the House and the Senate after the election, Australian economist Saul Eslake expects US trade policy to become more protectionist; fiscal policy to become more expansionary in the form of larger budget deficits; monetary policy to become more politicised via board appointments to the Federal Reserve; and foreign policy to become more isolationist.

The former president has threatened to impose a 60% tariff on Chinese imports if he returns to the White House, in addition to 10% tariffs on other nations. Eslake fears such policies could hurt international trade and cross-border investment.

“They are, in particular, intended to have a negative impact on the Chinese economy and so will indirectly have an adverse impact on the Australian economy both via the impact on China and the impact on other Asian economies whose economic fortunes are also closely linked to China’s,” he says.

Acuity columnist Donal Curtin, founder of Economics New Zealand, agrees that the Trump tariffs and likely retribution from other countries could do “quite a lot of damage to world trade”.

“One of the contributing factors to the Great Depression was precisely such tit-for-tat tariff restrictions in the 1930s,” he says. “For export-oriented small, open economies like New Zealand and Australia, the news won’t be good.”

Concerns for macroeconomic settings

Professor Peter Draper, executive director of the Institute for International Trade in the School of Economics and Public Policy at The University of Adelaide, says there is “a lot of convergence on trade policy between the current Democratic administration and the Republicans”.

However, he is concerned about macroeconomic and exchange-rate-management threats stemming from the US election, especially if former US trade representative Robert Lighthizer, a China hawk and the architect of American trade policy during Trump’s 2016–2020 presidency, becomes Treasury secretary, as has been mooted.

“Trump has already started throwing shots at the Federal Reserve and I think he would look to undermine its independence and get the dollar devalued,” says Draper, referring to reports that the Trump team is drafting proposals that would seek to erode the impartiality of the Federal Reserve.

How such an agenda could play out is unclear for now, but Draper says a weaker US dollar courtesy of “forced interventions” and a diminished Federal Reserve “would seriously disrupt international financial markets and currencies, and have inflationary implications. That’s a much bigger, nasty genie that could come out of a Trump 2.0 bottle than many people realise.”

“The America of today is very different from the America that saved the world from fascism 80 years ago. It will force other democracies, including possibly Australia and New Zealand, to ask themselves, not just ‘Can we rely on the US as a security partner’, but ‘Do we want to?’.”

Implications for APAC

Draper believes Australia’s services sector would be largely unaffected by a new Trump presidency, but the same can’t be said about crucial export sectors, such as agriculture, which could face challenges.

If China is hit with US tariffs on its agriculture exports, he says Beijing would, in turn, target US exports. In response, the Republican Party would then likely be forced to lift subsidies to American farming states in a repeat of Trump’s first-term actions – a move that could harm the competitiveness of Australia’s subsidy-poor farmers.

“For example, that could have implications for Australian farming exports to Europe,” Draper says.

Emma Shortis, senior researcher for International and Security Affairs at The Australia Institute, says the likelihood of “extreme protectionist economic policies” under Trump also must be considered in tandem with “military hawkishness” towards China when assessing any impacts on the Asia-Pacific.

She notes that some Trump advisers see China as an “existential threat to American primacy” and have made calls for tens of thousands of troops stationed in Europe to be deployed into the Asia-Pacific.

“Geopolitically, all of that taken together is extremely concerning, particularly viewed from the Pacific and viewed from Australia,” says Shortis, author of Our Exceptional Friend: Australia’s Fatal Alliance with the United States.

What about New Zealand?

In New Zealand, meat producers, dairy farmers and wine growers will be among the exporters anxiously contemplating any tariff-related fallout from the US election.

The latest Stats NZ data shows trade with the US has been increasing year-on-year and, in the 12 months to March 2024, exports hit a record NZ$14.6 billion. Meat exports to the US grew by 15% last year to a high of NZ$2.2 billion.

Curtin says exporters in a highly trade-reliant economy such as New Zealand will directly suffer if a second Trump presidency acts on its 10% tariff vow. Furthermore, there is the prospect of China upping the ante in markets such as New Zealand if US channels are cut off because of tariffs.

“In a way that would provide downward pressure on prices for New Zealand consumers if we’re getting Chinese cars and electronics goods at cheaper prices,” Curtin says. “But from a producer point of view, anyone trying to compete with the Chinese will find it hard.”

More broadly, Curtin has concerns for the trade-negotiation environment if Trump wins. He cites the Michael Wolff bestseller, Fire and Fury: Inside the Trump White House, which provides insights into the chaotic decision-making processes when Trump held the reins from 2016 to 2020.

“The book made it extraordinarily clear that Trump really despises any views other than his,” Curtin says. This means that traditional trade-negotiation relationships between respective countries’ embassies could be undermined “if all the important decisions end up in front of Trump”.

Lack of clarity about the Harris agenda

Critics of Harris argue that she lacks a definitive policy doctrine and expertise.

Given the late entry of the vice president into the race for the White House after Joe Biden’s withdrawal, Shortis says her foreign policy agenda “is less well understood because the outgoing president has taken the lead” on key issues. “We’ll have to wait and see,” Shortis says.

Nevertheless, Harris has spoken of the importance of the Indo-Pacific alliance to US security and prosperity, while there is an expectation that she will continue American support for Ukraine in the war against Russia. Likewise, she has supported the Inflation Reduction Act’s focus on clean energy initiatives and international responses to climate change threats – policy stances that will distinguish her from Trump’s outspoken backing for the fossil fuels industry.

While Trump’s call to “drill, baby drill” may be welcomed by Australia’s resource leaders, Shortis says it is counter to Australia’s net-zero greenhouse gas emission goals.

“It’s not just about the rewinding of the Inflation Reduction Act and climate action. It’s a dramatic increase in domestic oil and gas production, extraction, production and use. So, it’s a pretty radical reshaping of climate policy compared to that of the Biden administration.”

Curtin believes Harris would be “much less likely to frighten the bond and currency markets” than her rival because one of Trump’s signature policies – extending unfunded tax cuts from his first stint in office – could disrupt the US Treasury market, which is easily the biggest government bond market in the world.

Geopolitical consequences

As the election nears, Draper believes three factionalised Republican foreign policy stances are in play – first, that the US should become more isolationist and withdraw America’s world-cop approach; second, that it should adopt a more conditional engagement whereby America focuses on China, leaving Europe to deal with Russia; and third, that it should reassert America’s primacy in the world.

“How that’ll play out under a Trump 2.0 administration, I think it’s anybody’s guess.”

Eslake says the geopolitical and economic effects of a new Trump term could be significant. For example, traditional US allies may feel obliged to spend more on their own defence and, in the case of Japan and South Korea, acquire nuclear weapons capabilities. “And it would probably embolden Russia, China and North Korea to be more aggressive towards their near neighbours, including possibly making territorial grabs. This makes for heightened geopolitical uncertainty and hence probably for weaker global economic growth.”

Turning to the Russia–Ukraine war, Shortis says a Republican Party win in November would be bad news for Ukraine’s President Volodymyr Zelenskyy. With many Republicans, and Trump’s running mate JD Vance in particular, opposing further financial and weapons support for Ukraine, the embattled country would lose its biggest backer. “Of course, it depends on how the congressional elections play out, but if those elements in a future Trump administration have their way, there certainly would be a withdrawal of American support from Ukraine.”

Soul-searching required

Australia and New Zealand will have to do some real soul-searching if voters return Trump to the White House, according to Eslake, given that Americans have had eight years to understand Trump the politician.

“It will say that the America of today is very different from the America which saved the world from fascism 80 years ago, and which stared down Soviet Communism between the late 1940s and the early 1990s,” Eslake says. “It will say that America is very different from the America which, as recently as 2008 and again in 2012, chose a black man [Barack Obama] to be leader. It will force other democracies, including possibly Australia and New Zealand, to ask themselves, not just, ‘Can we rely on the US as a security partner?’, but ‘Do we want to?’.”

Shortis says the traditional Australian psyche when viewing American politics is that “we have no agency in what happens, and we just have to get through it”.

“That really underestimates our potential and our power and our influence, especially in our own region, to build partnerships and build collective security. I hope the chaos and the fragility of American politics at the moment is an opportunity really to rethink Australia’s role in the world.”

What is AUKUS and what future does it have?

For better or worse, the AUKUS agreement (a military security partnership between Australia, the UK and the US) to deliver nuclear-powered submarines to Australia is likely to survive, regardless of who wins office in the US.

Last year, the leaders of the trilateral partnership agreed to the transfer of at least three US Virginia-class boats in 2032 to offset the retirement of Australia’s Collins-class submarine fleet.

Professor Peter Draper, director of the Institute for International Trade in the School of Economics at The University of Adelaide, says he is “not particularly worried” about the fate of AUKUS under a new Trump administration, chiefly because the deal has strong support within the Republican Party.

“China is the primary threat and that does require the US military to circle the wagons, so to speak, and Australia in that context is a useful framework for containing China. So, I don’t think Trump would just drop it.”

He also notes that the former president typically only abandons international agreements if he thinks America is being dudded. As part of the AUKUS arrangement, Australia will provide more than A$4.5 billion to bolster America's submarine industrial base. “Certainly, Australia is putting up the cash for the AUKUS investments,” Draper says.

Critics have taken aim at the AUKUS deal because of get-out clauses allowing the US not to deliver nuclear submarines to Australia if it could cause a “capability gap” for the United States Navy.

Economist Saul Eslake says such issues make it “an open question whether AUKUS is in Australia’s best interests”, but he agrees that Australia would likely be seen by a second Trump administration as “paying its way” because, unusually, it runs a persistent trade deficit with the US and has taken part in every significant conflict in which the US has been involved since WWI.

“That means Australia couldn’t be portrayed as ‘cheating’ on trade with the US.”