Trump tariff implosion gives Dutton a fresh start

The collapse in stockmarket values and sharp rise in global uncertainty produced by Donald Trump’s decision to impose sweeping tariffs on imports to the US is an opportunity for both sides of politics to get serious about economic management and reform. If the market turbulence continues, it has the potential to fundamentally reset the election contest. Anthony Albanese has the advantage of incumbency. In uncertain times, voters will lean towards familiarity and are less likely to want to take a risk. But there are good reasons the Albanese government’s big-spending, high-debt formula is the wrong approach to governing and open to attack.

For Peter Dutton, it is a chance to put behind him the false starts of the first week of the campaign and focus directly on what should be the Coalition’s biggest area of strength, economic management. There are signs the Opposition Leader has got the message. He spent a large part of his press conference in South Australia on Monday reinforcing why the Coalition would be a safe pair of hands in a crisis. He can point to a good track record of managing difficult times, including the pandemic response. “In uncertain times, our country needs strong economic management” is the new message from Mr Dutton. “In this campaign, the choice is about who can better manage our economy to help you get ahead,” he said.

Labor will argue it did well managing the global financial crisis in 2008 but the truth of that situation is the Rudd government was able to draw on the low debt and strong budget position left by the Howard-Costello government immediately before financial calamity hit.

The same thing cannot be said today. The federal budget is in structural deficit, borrowings soon will hit $1 trillion and business is hamstrung by a series of debilitating changes to industrial relations laws. There is nothing to suggest a re-elected Albanese government would do anything other than continue the trend that leaves the hard work of economic repair to future generations. The Prime Minister says he is concerned about the fall in global sharemarkets and the impact that is having on the superannuation savings of millions of Australians.

Mr Dutton no doubt shares those concerns but he has a duty to put things into a bigger perspective. His decision to pull back on the promise to force federal public servants back to the workplace is indicative of how difficult it is to manage change. Yet whoever wins government will not be able to avoid the hard decisions that will be necessary if the global outlook continues to worsen in the face of international events.

It is not a matter of who could be closest to Mr Trump, who continues to send mixed signals on where to next. On the one hand, he is encouraging world leaders to negotiate. On the other he is doubling down on historic structural change. The only certainty with Mr Trump is that erratic uncertainty will persist. The effect of the US President’s decisions on tariffs is being felt not only on the stockmarket but also in the price of currencies and the commodities we supply. If this persists, it will have a big negative impact on the federal budget position, which has benefited from high commodity prices and terms of trade. The story of the Albanese government has been to leverage those windfall gains into recurrent expenditure, making any downturn more acute.

The warning alarm was sounded on Monday by Treasury in its pre-election budget outlook, which says there now is more uncertainty around the outlook for economic activity, commodity prices and inflation. “Over the past few days there have been significant falls in oil prices and a depreciation of the Australian dollar. Both developments would have implications for activity and inflation if they were to persist,” the Treasury update says. “In addition, there have been significant falls in other commodity prices in recent days. If these lower commodity prices were to persist, this would have implications for nominal GDP and revenue.”

Most of the impact for Australia will come from reduced demand in China, Japan, South Korea and India, with China accounting for almost 80 per cent of the total impact on Australian GDP. Current conditions also have transformed the outlook for interest rates. It is possible the Reserve Bank of Australia, having held the cash rate steady at its meeting last week, will be forced to return to an aggressive cycle of rate cuts if the impact of the tariff decision moves past the financial markets and into the real economy.

The reality for politicians is that true leadership is forged in crisis. Mr Albanese has cast himself most often as an observer of difficult events. Most recently this has included China’s naval provocations in our near waters. Jim Chalmers has seemed most comfortable as commentator on financial matters. Mr Dutton has an opportunity to explain why getting the fundamentals right on economic management will always be the hallmark of responsible government. This includes taking the decisions necessary to grow productivity and encourage private sector investment. To get that chance, he must first convince voters that he has done the work and has the policies necessary to put things back on track. The Trump-inspired market implosion has given him the opportunity for a fresh start.