In this article, Sinclair Davidson contextualises and disseminates the findings of the IPA’s research into Australia’s defence spending.
Long story short: there are no grounds for Australia to negotiate a tariff exemption with the US. Frankly, we got off lightly and should be grateful the Trump administration didn’t hit us harder.
From a US perspective, the 10 per cent tariff on Australian goods is just a tax grab. Something Australian politicians should understand. Given their past performance, they should even admire the American chutzpah.
Australia has a 10 per cent consumption tax that, despite my initial misgivings 25 years ago, works quite well in raising revenue and replacing a bunch of inefficient state taxes. In Australia, the states are constrained in the types of taxes they can levy. Our American friends are in a very different situation. They have no federal consumption tax, but several of their states do raise (somewhat inefficient) sales taxes. A naive understanding of our consumption tax (and equivalent European VATs) is that exports are subsidised (input credits are refunded at the border) and imports are taxed (10 per cent is levied on the sale of US goods within Australia).
So, from Donald Trump’s perspective, the Australian government is taking a 10 per cent clip on the sale of US goods and services in Australia. It’s only fair that the US federal government gets a 10 per cent clip on the sale of Australian goods and services in the US. Trump should have labelled his tax grab as a reciprocal consumption tax and not a tariff.
There is no chance that either Anthony Albanese or Peter Dutton will convince the Americans any differently on this point. After all, nobody ever succeeded in standing between them and an extra dollar in tax revenue. Why do they think they will dissuade Trump – who needs the money too – from being any different?
Let’s count our blessings. Trump, in only levying 10 per cent, is overlooking many legitimate grievances that Americans have with us.
The Australian government claims that “biosecurity” is a valid and legitimate basis to restrict trade. The Americans claim that this is simply a non-tariff barrier to trade. The Australian government claims that the Pharmaceutical Benefits Scheme is an important mechanism to ensure that Australians have access to world-class medicines at affordable prices. The Americans claim that this is intellectual property theft. Then, there is the bipartisan persecution of large US tech firms. Did everyone notice all of Trump’s new tech-bro friends sitting in the first row at his inauguration?
Australian political elites will have excuses for all these policies. When I point out that these are all legitimate grievances, they feel the need to speak louder and slower while explaining that I am wrong. Please feel free to yell at the US president.
Dutton has suggested that he is in a better position to negotiate with Trump than the current government. As the great philosopher Darryl Kerrigan said, “tell him he’s dreaming”. The Liberal Party is the author of many of the anti-US tech policies that so annoy the Americans. Furthermore, Trump does not approve of foreign adventurism – the fact that Australia goes to war when the US goes to war isn’t a selling point. In Trump’s ideal world, there will be no more foreign wars.
The bottom line is this: Trump thinks that we’ve been subsidising our lifestyles at the expense of his constituents. He is not entirely wrong and doesn’t care that he is slightly wrong.
The global “rules-based” international order has been on life support for several years. Trump switched off the machine last week. This leaves us highly exposed in a dangerous world.
Luckily, we’re about to have an election.
Rallying around the flag might be satisfying, but we need to get serious about the economy. No serious economic policy has been advanced in over a generation. Not only have we exhausted the fat of the land, but we are now living off our grandchildren’s tax receipts.
If we are to survive, let alone thrive, in this new world, we will have to crank up the economy. In the very first instance, we must pay more simply to defend ourselves. Living standards are falling, while hours worked in the economy are rising. That is a bad combination – we are working much harder for much less.
If we have an election campaign as usual, with all the bland platitudes and distracting stunts, the incoming government will find itself having to break many commitments and promises. Better pivot now, before the election, and unveil a plan that will serve our interests with far less reliance on the US.
