Hedging Trump: there are no good hedges

Plus, the role of full employment in an amended RBA Act

There has been quite a bit of commentary to the effect that US allies like the UK and Australia have not been talking or thinking about the implications of former President Trump taking back the White House in 2024, whether through fair means or foul. This piece by Browen Maddox is representative of the genre, as it this FT editorial:

All those who support the US-led international order will continue to hope for the best in 2024. But it is only prudent that they prepare, at the same time, for the worst.

It is fair to say that allied strategic discourse, especially from the official community, has not wrestled with these issues very openly, but that is not surprising. It would cast doubt on allied security and other cooperation at a time when US allies are seeking to increase US engagement. One of the few hedges we have against Trump’s return is to maximise US international engagement in ways that are difficult for a second Trump Administration to unwind.

The unofficial strategic policy community (e.g, think tanks) is less constrained, but also mostly supportive of greater cooperation and engagement between the US and its allies. To be relevant to policymakers, the unofficial community needs to speak to government policy priorities, so they are not overly interested in talking up the implications of Trump’s possible return.

However, just because these issues are not being addressed candidly in public does not mean that they are not being thought about. In my experience, Australian officials are very aware of the risks around US domestic politics and worry a great deal about their potential implications. Apart from the constraints mentioned above, there are two main problems with addressing this prospect more forthrightly: uncertainty about what another Trump presidency might mean in policy terms; and a lack good policy alternatives that might hedge these risks.

The obvious questions to ask about a second Trump Administration from an allied perspective are what policies it might pursue in relation to Ukraine, Taiwan, climate change, AUKUS, IPEF and international trade. We can’t be sure, although Trump generally does what he says he will do. On the latter issue, Trump has already declared he would institute an across the board 10% import tariff on top of the existing tariffs that were put in place by his Administration, and which have been maintained under Biden. That additional tariff would reduce the size of the US economy by 0.7 percent and eliminate 505,000 full-time equivalent jobs, based on the Tax Foundation’s model.