‘Hand over fist’: Wild way Donald Trump is about to impact Aussie economy

One of Donald Trump’s most shocking policies is about to hit Australia in a big way – and none of us will be immune from the aftermath.

ANALYSIS

Fear is the currency of Donald Trump; fear promulgated unnecessarily by his opponents, that is.

The new Trump administration has a good economic plan. The risks are in the execution, not the planning.

And even if Mr Trump’s minions overdo it, it is likely to deliver the kind of economic relief that Australians have craved and not gotten for three years under Labor.

The plan

Judging by mainstream commentary, Mr Trump is the end of the Australian economy as we know it.

This despite the tariffs applied locally being tiny and the larger universal tariffs having no impact on our competitiveness outside of the US (given they apply to everyone).

But behind the hysteria, there is a plan – quite a good plan, the kind of plan Australia would do well to emulate.

The plan is simple: to shift growth from public sector to private sector drivers.

Treasury Secretary Scott Bessent has declared that the US economy needs a period of “detox” from excessive public spending. We could hardly argue against that, for both America and Australia.

Post-Covid, the largesse never stopped in either economy, and unsustainable debt, inflation and interest rates have piled up as a result.

Elon Musk’s Department of Government Efficiency (DOGE) is being given a free hand to slash public spending in the US. Picture: Pool via AP

This is why Elon Musk’s Department of Government Efficiency (DOGE) is being given a free hand to slash public spending.

It’s not a great idea to give a freewheeling billionaire a giant chainsaw to scythe down random bureaucrats when much better-qualified and practised government razor gangs would do a better job.

But this is detail. It still meets the plan of reducing government spending as far as is needed to crush inflation, slash interest rates and let tax cuts plus deregulation unleash a private sector boom in its place.

The problem is in the phasing.

The US may need a recession — that is, public spending falls faster than private rises — to shift the growth engine. This is why Donald Trump himself has been on the hustings declaring he does not care about stock prices, in contradiction with near-universal expectations.

‘Interest rate cuts will rain down upon the nation’. Picture: NewsWire/Monique Harmer

A vague memory for Australians

Australians not consumed by Trump Derangement Syndrome and those over the age of 30 may recall a similar time in Australia.

In 1996, when the Howard government came to power, it did precisely the same thing. After the recession of the 1990s, the Keating government had never stopped spending, and John Howard brought his razor gang to bear to lower interest rates.

The result was a ten-year boom as low interest rates and deregulation (of both Labor and Liberal) paid dividends in the private sector.

What’s not to like about a re-run of that?

The US has a swath of technology booms underway — from AI to drugs to automated cars — that will drive productive growth if the government gets out of the way.

Australia needs this much more than America, not less, with its immigration-led, public sector bog economy decoupled entirely from productive growth drivers, meaning falling living standards.

Australians have been burdened with much higher interest rates than they should be. Picture: NCA NewsWire

Rate cuts from Trump

Labor’s public spending bog economy has meant Australians have been burdened with much higher interest rates than they should be.

This is made even worse by the higher taxes required to fund the spending.

On the other hand, the spillovers from Mr Trump’s plan are going to deliver the rate relief even as far as away as Australia.

The tariffs are most aggressively being imposed upon China. This is going to lead to a tsunami of cheap Chinese goods finding new markets. Australia will be importing deflation hand over fist.

It may seem counterintuitive, but even damage to Australia’s bulk commodity trades, like iron ore and coal, may be the detox that we need.

Donald Trump's policies could be about to have a huge impact on Aussies. Picture: iStock

Falling mining tax receipts will force spending restraint upon Canberra. It’s not an ideal source of pressure, but the outcome will be similar for Australians.

Inflation will be snuffed out, and interest rate cuts will rain down upon the nation.

If we had the sense to deploy some other Trumpian policies, in our own way, like reshaping markets so that failed competition is restored in just about every market you care to name, then we, too, would come out the other end with a private sector boom.

Alas, there is little of that kind of reform being discussed in Canberra, so we’ll have to rely on the hated Donald Trump to deliver our rate cuts.

David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geopolitics and economics portal. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.

Originally published as ‘Hand over fist’: Wild way Donald Trump is about to impact Aussie economy