Donald Trump is looming larger every day over the Australian federal election.
Now Jim Chalmers is blaming him for messing with his budget.
This Treasurer is now engaged in serious expectation management ahead of his fourth budget in three years, to be handed down just before Anthony Albanese pulls the trigger on the election campaign.
The storyline will go something like this: The world was already in chaos, Trump has accelerated it but Australia is a standout and is faring well due to his prudent economic management.
The latest OECD report supports the broader themes of Chalmers’ argument. It throws a cloud of uncertainty over Labor’s plans to cast the election through a window of optimism.
Global growth has been downgraded, with US and China growth slowing, while inflation will remain elevated for longer.
The report also doesn’t mince words over the trade impacts of Trumponomics. But it has been a similar story of all Labor’s budgets since it came to office in 2022 – without Trump. And none of it has been the government’s fault. The rest of the planet’s to blame.
“This is a time of serious volatility in a global economy which is increasingly uncertain and unpredictable,” Chalmers will say in his speech.
“A new US administration disrupting trade, a slowdown in China, a war in eastern Europe and a fragile ceasefire in the Middle East, political division and dissatisfaction around the world.
“Even in the most benign scenario, global growth over the next three years is expected to be its weakest since the 1990s.”
The narrative was much the same in 2024, but without the Trump factor. “It’s framed in fraught and fragile global conditions,” Chalmers began in his 2024 budget speech.
“Inflation is lingering in North America, growth is slowing in China and tepid in Europe, tensions have escalated in the Middle East and persist in Ukraine, global supply chains are fragmenting. This uncertainty combines with cost of living pressures and higher interest rates to slow our economy, with growth forecast to be just 1¾ per cent this financial year and 2 per cent next.”
And in 2023: “The global economy is slowing due to persistent inflation, higher interest rates and financial sector strains,” Chalmers warned.
“Outside of the pandemic and the global financial crisis, the next two years are expected to be the weakest for global growth in over two decades. This will affect us here in Australia.”
This time, however, the new bogeyman is Trump. He claims the US President’s influence on the global economy are seismic.
“It’s clear the rules that underpinned global economic engagement for more than 40 years are being rewritten,” he will say in his speech. “The whole world has changed. We’ve seen that change accelerate since inauguration day.”
Chalmers will release Treasury’s latest modelling of the impact of the steel and aluminium tariffs on the budget and Australia’s economy to underpin his argument. The problem is the impact is small. And he admits that Australia won’t be uniquely disadvantaged.
Treasury estimates the direct hit to GDP from steel and aluminium tariffs would be less than 0.02 per cent by 2030.
The indirect effects, and more importantly the indirect effects of tariffs and trade disruption more broadly, are more profound.
“In fact, over a range of scenarios, Treasury found the indirect GDP impacts of a trade war could be up to four times larger than the direct effects of tariffs on our economy,” Chalmers says. “In a world of retaliation and escalation, the impacts of tariffs are amplified, they linger for longer, resulting in a bigger reduction in GDP and a bigger increase in prices.”
Chalmers is right enough about the Trump factor in the global economy. But he also becomes a convenient cover for the sea of red ink that will underline the budget position over the next decade.
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