Here it is:
The six points were:
- scrap the TPP and pursue bilateral trade agreements;
- cancel restrictions on shale oil and clean coal;
- install rule that deletes two regulations for one imposed;
- create an infrastructure defence plan;
- restore integrity to visa system to prevent undercutting of US workers;
- “drain the swamp” by banning officials from becoming lobbyists.
According to Trump this is all to keep the next generation of production and innovation on American soil to benefit American workers and their wealth.
Let’s go to Professor Warwick McKibbin for an assessment of Australia in this world:
President Trump has also promised to rebuild America through a large infrastructure program. Again this is a much-needed reform and if done well, will like further boost the short and long run performance of the US economy. It is proposed to finance this through the private sector via tax incentives. This may not provide the type of infrastructure the US needs and will likely in the short run require debt financing.
Will a Republican Congress reverse years of opposition to raising the debt ceiling and allow a debt blowout of European proportions?
On international trade the risks are far greater. President Trump does not need Congress to withdraw from the Trans-Pacific Partnership and to renegotiate NAFTA or even to levy a tariff on Chinese imports in retaliation for currency manipulation. A trade war cannot be ruled out if in fact the forces of protection dominate the Trump presidency. How costly would this be? In a study for the World Bank, Andrew Stoeckel and I simulated a global trade war. We estimate that if the US levied a 40 per cent tariff on all imports, US GDP would fall 1.2 per cent.
If all countries retaliated, US GDP would fall 5.2 per cent and thus enter a deep recession. Australia’s GDP would fall by 5.6 per cent in this trade war. If China then withdraws financing of the US budget deficit, the negative shock to the US is magnified even more. Ironically some of this capital would probably flow to Australia providing a GDP benefit.
It is highly uncertain what a Trump presidency means for the global economy until the actual policies are revealed. It is likely that there will be a switch towards fiscal stimulus and monetary rebalancing which is good for the US economy but how this is financed is critical. It is likely that government debt will rise and therefore long-term interest rates will rise. This is bad for economies that are highly leveraged or sectors where there has been substantial mispricing of assets because assets will be repriced. Australia’s vulnerability is higher in this new world because Australia relies on foreign capital for financing domestic capital accumulation and gains a great deal from open international markets.
The worst outcome would be if Australia turned away from globalisation towards a narrow nationalism which would compound negative shocks from offshore. Is it very clearly in the national interest to continue to focus on generating the gains from globalisation and using the tax and transfer systems to more evenly spread the gains. Significantly, Australia is not the US in this respect.
It is also important, through reform of taxation and expenditures, to move the fiscal deficit into a more sustainable position that can withstand a significant rise in global interest rates and fall in global incomes in the worst case.
An inward focused Australia will quickly make clear the real costs of nurturing and unleashing the forces of populist nationalism.
That seems about right in terms of Australian vulnerability. Now, what about the solution? His call to “reform of taxation and expenditures, to move the fiscal deficit into a more sustainable position” is exactly right. This is structural reform that means removing Australia’s absurd housing and super subsidies. In practice it would help deflate the property bubble and cut tens of billions from government expenditure. The economic implications are both a more stable budget outlook to sustain counter-cyclical fiscal insurance and to diminish Australia’s offshore capital addiction as less debt is borrowed to waste on house prices.
The transition period would hurt as domestic demand fell with house prices but would quickly lower the currency as well and shift growth drivers to tradables instead. Bravo.
Nor should Australia “turn inwards”. But it really depends upon what this means. Professor McKibbin has also been at the forefront of recommending that Australia sell everything that is not tied down to China:
Obsessed by weak commodity prices and volatility in global financial markets to the point of not thinking about the future?
Don’t be, advises top economist and former Reserve Bank of Australia board member Warwick McKibbin.
Australia is better placed than most countries to benefit from long-term global trends – such as population ageing, fiscal adjustments and the shift in economic clout from Europe to Asia, Professor McKibbin says.
…”If you have got something like a fixed asset in a country and you are globalising the entire world then location becomes a valuable asset.”
“Real estate on Sydney harbour for example is also from a national point of view attractive. But for foreign investors it’s also very attractive because there’s billions of dollars of wealth being generated in China.
“The middle class is expanding, and they’re going to want to buy things, environmental goods – they’re going to want to buy stuff which we actually have in abundance. But much of it is fixed assets so you can’t change the supply of it, and so therefore it’s value is likely to go up a lot.”
But it will also drive up the real exchange rate, hurting the competitiveness of trade-exposed industries such as tourism – currently enjoying good growth with a lower Aussie dollar – and manufacturing. A stronger dollar means Australian goods and services are more expensive for foreigners while competing foreign goods and services are cheaper for Australians.
This is where I part ways with the good professor. What is the point of reforming policy at home to deflate the property bubble if you’re at the same time going allow foreign speculators to inflate it again? Moreover, if you’re looking for great economic self-reliance as a way to bulwark the economy from risks arising from a Chinese/American conflict, trade of otherwise, then selling everything not bolted to China will only make the fallout in any conflict worse.
The same argument can be applied to today’s citizenship export sectors such as a vastly corrupted visa system, an education sector that has no actual quality or price advantage and the foreign-focused dwelling construction industry. All rely significantly upon the export of citizenship to Chinese nationals.
So, if your goal is to mitigate US/China conflict, then although it is unwise to “turn inwards”, it is equally unwise to not adjust your external engagement so that these vulnerabilities are not mitigated.
What is needed, then, is a greater alignment of Australia’s strategic and economic policies to ensure an open economy with reduced not growing reliance to China. First by following Professor McKibbin’s reform proposals for the budget and then by:
- restoring integrity to the visa system;
- allowing Chinese capital to flow into raw materials but restricting it in strategic assets;
- properly policing foreign buyer rules for housing, and
- ‘draining the Canberra swamp’ to prevent foreign as well as local money from corrupting national interest policy.
That does not sound so very far from the “America first” described above.
