Magazine of Socialist Action in Australia

Trade war: How will it impact Australia?

Reading Time: 3 minutes

A trade war between the US and China has begun. As part of his ‘America First’ policy, Trump has introduced a range of tariffs. These are taxes on imported goods to make them less attractive than local goods, mostly focused on Chinese imports. This has caused China and other countries to retaliate with tariffs on US goods. This trade war could be what sets off the next global economic crisis.

The accounting firm KPMG released a report in August that modelled the effects of the US-China trade war on Australia. They found that under the best-case scenario, Australia would see a GDP loss of $36 billion over five years. If things were to escalate, and countries around the world introduced 15% tariffs, KPMG predicts 60,000 job losses over the next decade and a loss in real wages of $16 per hour.

After decades of governments pushing ‘free trade’, we are seeing a turn toward protectionism. Both free trade and protectionism are anti-worker policies. Both are strategies capitalists use to increase their profits.

Free trade allows the free movement of capital, letting capitalists avoid wages and rights won by workers in one country by going to another. Protectionism is about capitalists winning a more favourable environment to make profits, at the expense of overseas rivals and local consumers.

These strategies conflict with each other, but they are both inescapable under capitalism. The devastation that globalisation caused to industries in the West is part of what has led to the protectionist backlash.

In words, the Australian government is committed to free trade. But in actions, the government under the previous prime minister, Turnbull, was described by the Australian Financial Review as ‘quietly apeing Trump’ with an ‘Australia first’ policy.

The Australian Anti-Dumping Commission issues tariff notices on imported goods. The number of tariffs issued has tripled in the last six years.

The Turnbull government raised tariffs on imported steel after the 2015 steel crisis, to protect local steel producers. The real winners have not been steelworkers, but the owners of BlueScope and Liberty OneSteel. BlueScope workers who took a pay freeze during the steel crisis did not see their wages return to normal when BlueScope saw $1.5 billion in profit last financial year.

BlueScope and Liberty OneSteel have been able to charge more for their steel because of the tariffs. These high prices feed into higher costs in the construction sector, spreading through the economy.

The problems caused by free trade and those caused by tariffs are, at root, all caused by capitalism. Private ownership of industry and a lack of democratic planning are at fault. Private ownership means capitalists get to make the choice to offshore jobs to places with lower wages, or to use tariffs to gouge working people locally. Their decisions are made entirely for profit.

Trump is using tariffs as a tool for US imperialism against China, and he claims they will help US industry. But even governments that talk big on free trade will raise tariffs to defend against other countries’ protectionism. It is likely that the trade war will spread.

This will lead to a slowing of global trade, causing job losses and possible recession around the world. The uncertainty of the trade war has made capitalist investors even less likely to put money into the economy than they already were. Banks may see lending as riskier, and raise interest rates, causing Australian banks to follow, putting mortgage-holders under pressure.

Household debt is currently double household income. Working people as a whole are forced to take on this debt; the fact that capitalists take a profit from our work means they can’t pay workers enough to keep the economy running without debt.

Global capitalism is heading for another crash, with Trump’s trade war as a possible trigger. Australia is not as insulated as in 2008 and the government can’t afford the same level of bailout. The ingredients for an Australian crisis are already in place. We are likely to see drops in real wages, job losses, falls in spending, and home foreclosures. The ruling class will try to make us pay for the crisis with austerity, as they have done overseas.

Under capitalism we cannot control the decisions of capitalists to offshore jobs, drive down wages, raise prices or withhold investment when those actions net them a profit. They will do these things even as it sends their own system off a cliff. There is no solution under capitalism. We have to end the profit system, and democratically organise production and investment under worker’s control.

By David Elliott


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