The one bit of the Trump vs Harris debate that South Australians should watch
In a debate that was more about posturing than policy, Dr Susan Stone writes that South Australia needs to pay close attention to both candidates’ tariff policies in order to protect valuable exports.
Last week’s US Presidential debate, while providing plenty of sound bites, provided little substance on economic policies by either candidate. One exception, however, was very short discussion on the proposed use of tariffs by a potential Trump administration.
Former President Trump has pledge to raise tariffs of “up to” 20 per cent on “most” goods entering the United States and between 60 per cent and 100 per cent on those coming from China.
Vice President Harris claimed these tariffs, if imposed, would cost American consumers an extra $US4,000 per year. Harris’ numbers were based on a report by the Center of American Progress Action which estimated that a 20 per cent across the board tariff on imports and a 60 per cent tariff on Chinese imports would cost the average American family $3,900.
Of course, the eventuality of any cost increase depends on a myriad factors and reactions including those by domestic producers, foreign producers and their governments.
While it is argued that tariffs raise revenue for governments, they also lead to higher prices, less competition and more uncertainty in markets, which usually more than offset any revenue gains. Tariffs can also lead to retaliation among trading partners, disrupting supply chains and again, leading to higher costs and uncertainty.
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Any US tariff would have a larger impact on South Australian trade than for Australia overall.
The US accounts for over 10 per cent of South Australian exports but less than 5 per cent of Australian exports. Important export markets for SA including beef, alcohol (notably wine), and lead, which all have significant sales to the US. For example, 44 per cent of South Australian exports of meat are to the US. Any tariff could have a serious impact on these businesses.
If Trump were to win in November, we are likely to see a speedy rise in imports as companies rush to get their goods shipped ahead of the tariffs.
This frontloading of imports would have an immediate impact on international freight rates whose rising costs would get passed down the line, not just to consumers in the US, but to anyone using global shipping. When Trump raised tariffs on China in 2018, ocean container shipping market rates spiked more than 70 per cent. Any such increase would impact not just our exports, but our imports as well.
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In addition to rising shipping costs, increased US dollar volatility and rising risk due to uncertainty, will almost certainly flow on to Australia.
Reduced demand for imports means the US dollar gets stronger relative to the foreign currencies leading to – all else being equal – a decline in US exports. But a stronger dollar hurts other countries, like Australia, whose goods are traded in those dollars. So even if South Australia exported no goods to the US, increasing tariffs in that country could still have a large impact on our commodity exports like iron ore, copper and wheat.
However, looking forward, changes to US trade policy may have a larger impact on Australia’s ambition to diversify its export base.
China, Japan and Korea account for nearly 60 per cent of Australia’s total exports. This concentration is something the Australian government would like to change.
Recent South Australian governments have invested heavily in technology precincts, hoping to play a global role in this lucrative sector. If we are looking to expand into higher technology exports, including green technology, the US is a key market.
The US has averaged over 25 per cent of Australian high technology exports since COVID and has an even higher share for some products such as high-tech engines (46%), pharma products (47%) and machine tools (64%).
For South Australia, the US is a significant market (averaging more than 25 per cent) in almost all of SA’s high-tech goods. This is important because if South Australia wants to become a bigger player in the advanced goods and services market, it needs to access to major global markets and any increase in barriers to the US market will hamper this goal.
But these opportunities may be hampered no matter who gets in the White House.
Higher tariffs are on the agenda of both parties and will continue to be part of the US policy landscape whoever is elected President. The Biden administration has not removed most of the Trump-era tariffs and it does not appear that Harris would do anything differently.
While Trump’s call for broad-based tariffs is a backward policy for anyone supporting effective global markets, Harris’ call for so-called ‘targeted’ tariffs may prove to be only marginally better.
Dr Susan Stone is the Credit Union SA Chair of Economics at UniSA.
