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In the face of US tariffs and potential counter-tariffs, Australia needs resilience and lots of it, says UNSW Professor Richard Holden.
“We want to make our economy as robust and resilient as we can. That’s about all we can really do,” he says.
While there might be much uncertainty for businesses, Prof. Holden says innovation and adaptability would produce a “big payoff” for businesses.
UNSW Business School economics professor Petr Sedlacek agrees that any restrictions on global trade caused by new US trade policies was likely to send negative shockwaves.
“The short-term impact may be particularly painful but competitive pressures and substitution are powerful forces, and it is likely that in the medium term, businesses will find new trading partners and alternative markets,” he says.
Prof Sedlacek points to examples of countries adapting to large economic shocks such as Europe after it was cut off from Russian gas.
ECONOMIC LESSONS
Prof. Sedlacek says Trump has cultivated an image of being savvy about the economy and fast to take credit for a genuinely strong US economy.
But, he says, economic research suggests there would have been no difference between the post-election performance under Trump in 2018 and a “doppelganger” US economy without him.
“In short, there was no evidence of an economic ‘Trump effect’,” said Prof. Sedlacek, who says the evidence is based on the work of researchers who used an algorithm to compare which OECD economies best matched the US economy before the 2016 election.
“It was then possible to compare the evolution of the US economy since the election with that of the doppelganger as if Trump had not been elected,” he said.
“This approach has been successfully applied to similar events, such as the German unification and Brexit, but (also) even completely unrelated questions, such as the introduction of tobacco laws in the US.
“The result of this analysis shows no evidence of a Trump effect. By mid-2018, the growth rate of real GDP – arguably one of the main economic indicators – was indistinguishable between the doppelganger and the actual US economy.
“A similar conclusion can be made about employment, another key economic metric and prominent political goal. It remains to be seen whether this time will be different,” Prof. Sedlacek said.
