Trump’s policy triumphs expose critical gaps in Australia’s economic strategy
Second, Russian President Putin is coming to the US for peace talks. It would appear that the big increase in Indian tariffs was important in changing Putin’s mind. And thirdly, while the income from tariffs is high, the flow-on to US prices is less than Trump’s opponents expected.
But in each of those situations Australia finds itself at odds with the US.
In the case of using US-style tax incentives to foster investment and aspiration, our Treasurer Jim Chalmers is heading in a totally different direction and is actually following the policies of former Vice President Kamala Harris.
In the Indian tariff thrust to curb Russian oil exports, Australia is indirectly involved because we import about $1bn in refined petroleum products from India, much of which is sourced from Russian crude.
And almost certainly Australia will absorb a part of the costs of the Trump tariffs.
A key part of the Trump corporate tax incentives enables US corporations to invest in capital works and deduct that investment against their taxable income. Most of the large US corporations were already planning substantial investment but those that are earning strong profits will now get a cash windfall which is being reflected in US share price calculations.
Here in Australia, Chalmers has embraced Kamala Harris’s plan to tax unrealised gains. Harris set a trigger point at $US1bn ($1.53bn) and the horror mobilised support for Trump. Chalmers has set his cut-off point in his Harris-style tax on unrealised gains at just $3m in superannuation. This will cause a substantial fall in money invested in self-managed superannuation funds which are huge contributors to the capital needs of smaller and medium-sized corporations.
Those companies, the engine room of much of Australia’s productivity and growth, will have to lower their aspirations – the reverse of what Prime Minister Anthony Albanese spruiks in his public statements. If Chalmers proceeds with his tax on unrealised gains, it is likely that President Trump will express cynical surprise that Australia is following Harris rather than Trump in capital management and aspiration. Accordingly Albanese should avoid a joint public interview.
When Trump announced that he planned to put much greater clamps on the export of Russian crude, Putin was adamant that he did not want Ukraine peace talks. But then Trump pressed what appears to be the ‘Putin panic button’ when he announced 50 per cent tariff on all Indian exports to the US which would decimate significant parts of the Indian business community including gems, textiles and seafood.
Indian President Narendra Modi has generated large cash flows for India by buying Russian crude at low prices and using Indian refining capacity to export petroleum products in a manoeuvre where no one could be sure if their products came from Russian or non-Russian crude. Australia was a beneficiary but we were not alone. In the various messages Trump has delivered to Australia, the Trump people have never mentioned our petroleum product imports from India/Russia.
But that highlights the fact that we have foolishly allowed our refining capacity to be reduced so we are dependent on others for a significant portion of our petroleum product needs. The Indian share market has not collapsed as a result of the tariff imposition by Trump. The Indians clearly believe that Putin is ready to make a Ukraine settlement, and the oil tariffs will never be imposed.[There is still a dairy issue.]
Of course, as we have seen in previous negotiations between Trump and Putin, the Russian president has always been prepared to walk away if he is unhappy at the settlement proposed by Trump. But this time, not only is Europe mustering substantial military power, but the US has resumed arms shipments. Although China takes substantial amounts of Russian crude, India has been a very important outlet.
When it comes to tariffs, US income has been greater than many had expected but the flow-on to prices has also been lower than expected. Clearly the burden of the tariff is being shared between US consumers; US wholesalers/retailers and those who are exporting to the US.
The exporters to the US, led by China, are much more active in seeking other markets for goods that were previously earmarked for the US. But they are also looking for ways to lift their prices in those markets so that the US tariff burden is spread to other customers. Once the tariff wars settle down, Australia will almost certainly find that the cost of some of its imports will creep up in price as we take some of the US tariff burden.
If these US tariff price trends continue, then the Trump camp will declare a significant victory.
And if there is a Ukraine peace settlement what will be of vital importance to the US is access to Ukraine’s rare earths. We don’t know to what extent Ukraine’s rare earth deposits include heavier rare earths like terbium but almost certainly the US has done some testing which is why they are so anxious to have rights to these deposits which in turn will provide Ukraine with greater security against a second Russian attack.
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