If Trump wins, Australia’s economy tanks

Donald Trump’s plans to impose heavy tariffs, deport millions of undocumented workers and interfere in interest rate settings would return the American economy to the depths reached during the pandemic, with high inflation and low growth, a world-first analysis of his policies has revealed.

Led by renowned Australian economist and former Reserve Bank board member Warwick McKibbin, the research also found the Australian economy would suffer severe collateral damage from the Republican presidential nominee’s policies.

Donald Trump has been upfront about his plans, which challenge economic orthodoxy and some of America’s most important economic institutions.Credit: AP

While China, Australia’s most important export market, would be hit hard by the Trump agenda, the research showed the biggest damage would be done to Americans, who would suffer a “significant worsening of the standard of living”.

Trump, whom polls give a 50-50 chance of defeating Vice President Kamala Harris in the November 5 presidential election, has been upfront about his plans, which challenge economic orthodoxy and some of America’s most important economic institutions.

The analysis, compiled by McKibbin and Peterson Institute economists Megan Hogan and Marcus Noland, models Trump’s stated policies to impose tariffs of up to 60 per cent on all imports, the mass incarceration and deportation of up to 8.3 million undocumented workers and the former president’s public support for, in effect, overruling the Federal Reserve on US interest rate settings.

Just a 10 percentage point increase in tariffs would leave the American economy 0.4 per cent smaller than it would be otherwise in 2026, with larger hits to Mexico and Canada. Australia’s economy would also shrink.

But Trump, who has argued that tariffs on imported goods would be paid by the exporting country, has warned of 60- percentage point hikes in tariffs on Chinese goods. China’s economy would take the largest hit, being a full percentage point smaller in 2026, while Australia would be the second-worst affected, with GDP here 0.2 percentage points lower than it would be without Trump’s intervention.

The impact would remain about that size for the next decade, the modelling found.

More economic pain would be delivered to the US by the combination of Trump’s other proposals, particularly the former president’s threat to intervene in the operations of the US Federal Reserve.

The modelling suggested the US economy would be between 2.8 per cent and 9.7 per cent smaller than it would be otherwise by 2028, and smaller than it is today.

‘While Trump promises to make the foreigners pay, it is the US that will suffer the most under these proposed policies.’

Analysis authors

“We find that ironically, despite the ‘make the foreigners pay’ rhetoric, this package of policies does more damage to the US economy than to any other in the world,” the economists said.

“Under the more extreme scenario, the US economy will be in a similar state (apart from mortality rates) to the worst of the COVID-19 pandemic experience by 2028, but the rebound will be much smaller.

“In sum, while Trump promises to make the foreigners pay, it is the US that will suffer the most under these proposed policies.”

Intervening in the Federal Reserve’s operations would actually boost most other countries. Australia’s GDP would be around 0.5 percentage points stronger than it would be otherwise.

Economist Warwick McKibbin, one of those to model the impact of Trump’s policy agenda.Credit: Louie Douvis

But for Americans, inflation would be substantially higher, with the economists estimating that by 2028 it would be between 20 and 28 per cent above the level it would be without Trump’s intervention.

Trump has said he will round up undocumented workers and undertake the largest mass deportation from the US since the 1950s.

According to the analysis, removing 1.3 million workers would reduce American GDP by 1.2 per cent more than would have occurred otherwise, while almost every other developed nation would be either unaffected or enjoy a small lift.

If Trump managed to deport 8.3 million workers, as his full policy would suggest, the American economy would be 7 percentage points smaller than if the workers had remained. Even by 2040, the American jobs market would not have recovered from Trump’s plan.

Australia would be relatively unscathed by the deportation of workers, while some of the biggest winners would be nations such as Turkey and Russia.

But the combination of the tariffs, mass deportation of workers and Federal Reserve interference would leave Australians worse off.

The economists estimated America would in effect be in a deep recession within two years if all Trump’s policies were put in place, with much lower GDP, much higher inflation and far fewer people holding down a job.

“Donald Trump portrays the US as the victim of perfidious foreigners. He proposes to right the scales through a policy of mass deportations, trade protection and influence over the Fed,” the authors noted.

“[However] the policies negatively impact US firms and households, with different sectors of the economy being hurt differently depending on the policy.”

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