Trump tariff shock the wake-up call Australia needed, it should now be the circuit breaker for reform.

The Trump tariff shock on steel and aluminium is the psychological wake-up call Australia needed. It should now be the political circuit breaker that drives reform of our policy settings.

The world has entered a new age of economic nationalism. As argued by Treasury secretary Steven Kennedy, it’s a world where “economic and financial tools are being deployed much more aggressively to promote and defend national interests”.

Rules and norms are being discarded as countries look to gain geopolitical advantage. The era of deep globalisation under the so-called “Washington consensus” and the watchful eye of the World Trade Organisation is over.

The sources of this breakdown in the liberal economic order long predate Donald Trump’s latest tariffs. They range from China’s manufacturing export boom after WTO entry, slow economic growth after the global financial crisis, resurgent great power competition, rapid technological change, the pandemic, war in ­Europe, and frustration with the unequal benefits of globalisation.

Even before Trump 2.0, there had been a surge in new trade restrictions and in the use of industrial policy subsidies.

The deployment of other tools of “economic statecraft” – such as sanctions, export controls and investment restrictions – has never been higher.

Australia’s economic policy architecture remains ill-prepared for a more fractured, contested and shock-prone world.

Sitting around bemoaning the Trump administration’s tariff policies is worse than useless. Whether we like it or not, we need to construct our own variant of what others have called the “economic security state”.

So, what is to be done?

First, Canberra needs to build real analytical muscle to chart a course through the rolling economic turmoil that now confronts us. There is a low-key process in the bureaucracy co-ordinating ­efforts on “economic security”, but the metronome is moving too slowly, and the stakes have become higher.

The next federal government should create a new National Economic Security Agency drawing together national security and economic expertise under one roof. NESA’s core function would be to assess our primary economic security risks and make policy recommendations on ways to mitigate them and to build critical national capability.

The new agency should have a “double hatted” governance structure, with a work program developed jointly by the secretaries of Treasury and the Department of Foreign Affairs and Trade. Over time, it would build up a cadre of officials working at the intersection of national security and economic policy. It would also need to work closely with state governments and the business community.

Second, the Albanese government’s Future Made in Australia strategy needs to be recast. As outlined in last year’s budget, FMIA poses many of the right questions, but its design is overweight net zero transformation and underweight national security.

As argued by Treasurer Jim Chalmers at the time, a core goal of FMIA is to better align our security and economic interests for greater national resilience. That’s sensible. Domestic industry policy, wisely deployed, can and should play a role in advancing this objective.

But that’s not what we have. Currently, FMIA overreaches in its objectives – from turning Australia into a renewable energy superpower to just making more stuff here – and in touting a “new growth model” for the economy.

Yet it underreaches massively in the realm of mitigating security risks, building national resilience, and renovating our economic statecraft.

As part of this redesign, there is an urgent need to shift scarce government resources towards building effective defence capability; not because that’s what the Trump administration wants us to do, but because it is what we must do to defend our sovereignty and our interests. Rationalising defence industry programs would be a useful first step.

A third focus should be renovating our international economic policy. There will be opportunities for Australia from the re-globalisation that will occur in coming years, including from the Trump tariffs. Our government needs to be ready to seize them through new economic partnerships.

Reinforcing Australia’s credentials as a trusted and reliable source of energy and food security is a good place to start. For many partners in the Indo-Pacific and across the Global South, these are the sources of economic security that matter most. There will also be opportunities across defence industry, tech and critical minerals, so we need to be on our toes.

The task for Australian policymakers in 2025 is to preserve as far as possible the benefits of economic openness while taking active steps to protect and defend our ­national security, economic prosperity, state sovereignty and liberal democratic values.

Policies that promote market dynamism, cost competitiveness and productivity improvement remain vital. And rigorous cost-­benefit analysis of policy interventions is more important than ever. This is not a time to discard economic ways of thinking.

But nor is it time to indulge in dismantling core functions of ­government. To preserve and ­promote our economic security, Australia must forge a new marriage between economic rationalism and state capacity fit for uncertain times.

John Kunkel is senior economics adviser at the United States Studies Centre and was chief of staff to ex-prime minister Scott Morrison