America’s withdrawal from Afghanistan is a looming disaster for Australia’s economy

The end of lockdowns should signal a lift in the Australian economy, but a surprising combination of factors could spell disaster.

Global headlines and the broader geopolitical landscape are currently defined by the haphazard American withdrawal from Afghanistan.

The move contributed to the collapse of the Afghan military and left thousands of foreign citizens, including Americans, as the Taliban easily re-took control of the country.

The timing also couldn’t be worse, with this Saturday’s 20th anniversary of the September 11 attacks shining a light on what little gains the US achieved in the two decades of involvement in the Middle East.

But as the world begins to come to grips with America’s self-inflicted foreign policy disaster, there are potentially far-reaching consequences that could go well beyond the boundaries of global geopolitics.

Saturday marks 20 years since the 9/11 terrorist attacks which ultimately led to the US becoming involved in the conflict in the Middle East. Picture: Seth McAllister/AFP

Taliban fighters walk across the tarmac at Kabul Airport on September 9, 2021. Picture: Wakil Kohsar/AFP

Towards the end of the year, Australia is expected to take its first tentative steps out of lockdown and into its second major economic recovery in as many years. With levels of federal government support only a fraction of what they were last year and global economic growth showing signs of rolling over, the world that greets us on the other side will be very different to late 2020.

But what does Australia’s economy have to do with the American withdrawal from Afghanistan?

Believe it or not, quite a lot.

With even the official allegedly heavily “massaged” statistics showing key sectors of the Chinese economy contracting, the eyes of the world have turned to the United States to be the engine of global growth for this economic cycle.

But as the impact of trillions of dollars in government stimulus and support programs begin to fade, the US economy is already showing some concerning signs of slowing down significantly.

President Joe Biden – America’s own radioactive man

In the wake of the disastrous American withdrawal from Afghanistan, US President Joe Biden’s approval rating has plummeted and is showing little sign of a swift recovery.

On Monday it was reported that at least six passenger planes chartered to evacuate Americans, other foreign nationals and refugees were being refused permission to leave by the Taliban.

With the possibility that this defacto hostage situation will still be making headlines in the US on the 20th anniversary of 9/11, Mr Biden’s approval rating may have even further to fall.

As it stands, Mr Biden’s approval rating has fallen further due to the botched Afghanistan withdrawal than Donald Trump’s did in the aftermath of protesters storming the US Capitol building.

How bad is this for Biden. This chart shows Biden's approval rating decline since July 9 (his recent peak) after the COVID turned higher and Afghanistan vs Trump's Nov 11 peak, after the Election and the Jan 6th protest.

Biden's approval rating is taking a bigger hit.

3/5 pic.twitter.com/j7j0pj9eZf

— Jim Bianco (@biancoresearch) September 3, 2021

Until his political fortunes change, Mr Biden will remain politically radioactive.

This makes the passage of further stimulus bills to support the US economy challenging to say the least, as some Democrats increasingly look to their own political survival ahead of next year’s midterm elections.

The elephant in the room – inflation

In recent months US consumer confidence has plummeted, despite the reopening economy. While there are a number of different theories as to why, perhaps the most obvious is the impact of inflation on households.

US consumers have seen the largest increase in food and energy prices in decades, while simultaneously seeing prices of used cars and housing set off for the moon.

As a result, Americans are increasingly slamming the brakes on their spending intentions as a result.

The attitude of Americans towards inflation can be summed up by the words of former president Ronald Reagan, who led the nation through part of one of the worst inflationary periods in modern US history.

“Inflation is as violent as a mugger, as frightening as an armed robber and as deadly as a hit man.”

As concerns about inflation continue to build for American households, key politicians within Biden’s own party are sitting up and taking notice.

Instead of rushing to spend trillions on new government programs and additional stimulus funding, Congress should hit a strategic pause on the budget-reconciliation legislation. Read my op-ed in @WSJopinion: https://t.co/hlkIpfwVd8

— Senator Joe Manchin (@Sen_JoeManchin) September 2, 2021

West Virginia Democratic Senator Joe Manchin recently penned an op-ed for the Wall St Journal criticising the leadership of his own party.

“Democratic congressional leaders propose to pass the largest single spending bill in history with no regard to rising inflation, crippling debt or the inevitability of future crises,” he wrote. “Ignoring the fiscal consequences of our policy choices will create a disastrous future for the next generation of Americans.”

As a key swing vote in the US Senate without whom legislation cannot be passed without Republican support, Mr Manchin’s vote will be key to the passage of any further support for the US economy.

How it all fits together going forward?

With President Xi Jinping’s China increasingly looking to tighten its belt and prepare for tough economic times ahead, the future of the global economy may rest on the ability of the Biden administration to pass further large-scale support for the US economy.

While this sounds like a good thing in theory, in reality it could present a potentially impossible challenge for global supply chains to cope with. It may end up creating further inflation at a time when households around the world are least able to cope with the increased costs.

From a political perspective, further stimulus may be something of a moot point.

If Mr Biden remains politically radioactive due to the events unfolding in Afghanistan and the return of high inflation remains a risk, the passage of further large-scale short-term stimulus programs remains in doubt.

Between a seemingly far more fiscally conservative China and the potential for a lack of further US stimulus going forward, Australia may face a particularly challenging time going forward.

It is said that if the Chinese economy sneezes Australia catches a cold, but one can only speculate on how things will play out for our Great Southern land if the world’s two most powerful engines of economic growth fail to sufficiently fire.

Tarric Brooker is a freelance journalist and social commentator | @AvidCommentator