The rise of Trump sets a new test for Albanese, and Dutton

But the opposition leader can be just as much a target. Musk could take a swipe at Dutton over Australian laws like the age ban on social media or the orders to take down violent content. After all, both are Coalition policies.

Pretending to get along happily with Trump may be a fool’s errand because the president will be more bull-headed, not less, in his second term. And his love for tariffs is the singular challenge for both Albanese and Dutton because the president could easily move before the Australian election. So how will they respond?

It is now commonplace to play down the tough talk on trade as bombast to pressure other countries into doing what Trump wants on other fronts. In other words, it is transactional Trump at work. The best example is the way Trump demands action from Canada on illegal migration and fentanyl smuggling while threatening the country with 25 per cent tariffs.

But what if tariffs are used as economic weapons, not just bargaining chips? This is exactly the scenario spelt out by one of Trump’s top advisers, Stephen Miran, an economist with a PhD from Harvard University and years of experience in financial markets. Trump has chosen Miran to chair his Council of Economic Advisers.

Here’s the key point. Miran has written detailed papers saying the United States economy could be better off with average tariffs of 20 per cent and even as high as 50 per cent. Most economists dismiss this, of course, but Miran argues the benefits outweigh the costs over time. The Wall Street Journal outlined some of Miran’s thinking in a revealing news story by Greg Ip last week.

The case for tariffs is the mainstream view inside the new administration. Some of Trump’s inner circle dissuaded him from slugging Australia with tariffs on iron and steel seven years ago; it is not clear who would do that now. The intense lobbying by Malcolm Turnbull as prime minister and Joe Hockey as ambassador worked in 2018 because there were people willing to listen inside the White House. It may not work when Trump is even more certain about tariffs and even more emboldened after his second election victory.

But there is a catch in all of this. Miran says the economic gain to America will depend on how the world responds. “Retaliatory tariffs by other nations can nullify the welfare benefits of tariffs for the US,” he writes. His point is mostly about China, but it applies more broadly and has implications for Australia.

How can Australia urge the Trump team to back off? Taking Miran at face value, the answer is to threaten retaliation.

This is what Canada is doing, even after the war of words with Trudeau. The Canadians have talked about “dollar-for-dollar” matching tariffs on American products. The Europeans are debating matching tariffs on all US exports except essentials like oil and gas. Seven years ago, they were more targeted, with tariffs on Harley-Davidson motorbikes, bourbon and orange juice.

This is precisely the wrong answer for the world economy, of course. A trade war means lower growth for all. When the Reserve Bank modelled this worst-case scenario seven years ago, it found that Australian economic output would be 1 per cent lower and unemployment would be 0.25 per cent higher.

In conversations for this column, Hockey argues the best approach will be to remind Trump and his team of the security alliance. For Australia to fire back with tariffs on America, he says, would barely have an impact – “a pimple on an elephant” of the US economy. Another former Australian ambassador, Arthur Sinodinos, says Trump has to be convinced that American success depends in part on allies, including Australia.

“It’s not so much that we need them – the message to the Americans has to be they need us,” Sinodinos said on ABC’s AM program this week.

Albanese is clearly hoping this approach will work. Dutton, meanwhile, assumes he can build a personal relationship with Trump to shield Australia from the danger. But will voters reward Dutton for looking overly friendly toward Trump?

This goes to the heart of the Australian political argument about strength and weakness. What is the strong response to Trump? Pretending to get along with him will not convince any Australian voter if he presents an economic threat. And tariffs will clearly damage Australia, even if they are imposed directly on others – China in particular – but not on us.

To resist but accept the tariffs will look weak. To talk about retaliation could sound like an empty threat. But rolling over and playing nice is no strategy at all. The rise of Trump sets a new test for Albanese and Dutton on who will have the sharpest and toughest response in a crisis.

David Crowe is chief political correspondent for The Sydney Morning Herald and The Age.

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