Australia stands to lose hundreds of thousands of jobs if Trump's trade war goes global

Picture: Getty Images
  • KPMG modelling shows a global trade war shrinking Australia’s economy by $35 billion for the loss of 285,000 jobs.
  • Canada, the UK and the EU would be the hardest hit by a trade war.
  • A 10% tariff hike by all countries on primary and manufactured goods would lead to a global recession similar to the GFC.

The global economy would sink into a long-lasting GFC-like slump and Australia would lose hundreds of thousands of jobs in an escalating trade war set off by the US, according to modelling by KPMG.

A strong global response across the world to America’s new steel and aluminium tariffs would cut Australia’s GDP by $35 billion and mean the loss of 285,000 jobs.

Even at the low end of forecasts, where all countries increase tariffs by just 5%, the Australian economy would fall by 0.8 percentage points, or a drop of $15 billion with the loss of 130,000 jobs.

The trade fight between China and the US is heating up, according to the latest reports. China responded to recent steel and aluminium tariffs from President Donald Trump with tariffs on 128 US goods.

Wall Street fell overnight ahead of the Trump administration’s plan to unveil a list of Chinese imports targeted for US tariffs. The list of $US50 billion to $US60 billion worth of annual imports is expected to target high tech.

The KPMG modelling shows retaliation by the rest of the world to US tariffs would tip Canada, the UK and the EU into recession.

It would also create substantial job losses in Australia, according to the report by KPMG Australia, The Re-emergence of Protectionism.

“For Australia, the level of comparative damage would be smaller,” says Brendan Rynne, KPMG Australia Chief Economist.

“But we are nonetheless a case study in the benefits of free trade.”

Australia was a relatively poor country in 1973 when it joined the then-GATT reduction of tariffs.
Within 40 years, exports and imports had tripled as a proportion of GDP, as formerly-protected domestic industries had to reform to survive under global competition.

“Our analysis shows that a hostile global trade environment would see Australia’s hard-fought gains from trade liberalisation being eroded,” says Rynne.

In the KPMG modelling, the most serious scenarios would be a 10% tariff hike by all countries on primary and manufactured goods, leading to a global recession similar to the GFC.

Under this scenario, global economic growth fall by 3.3%, which would result in Australia’s economy falling by $35 billion or 285,000 jobs.

KPMG says the world economy would probably take even longer to recover than the GFC, given the increased levels of protectionism compared to a decade ago.

“Our modelling shows that countries would be wise to consider how to respond to any import tariffs implemented by the US,” says Rynne.

“While all countries lose under these scenarios, the US lose by considerably less than others do.”

The level of damage from a trade war for Canada and the EU27 nations would be higher than the rest of the world.

These economies would be adversely affected by 8.5 times and 7.5 times as much as the US economy. For the UK the ratio is 5.3.

“Those countries simply cannot afford to get into any sort of trade war with the US,” says Rynne.

The four scenarios modelled by KPMG:

And the estimated impact on GDP by country from each scenario:

KPMG used the Computable General Equilibrium model of production and trade for its modelling. This is the same analytical framework used by the US Department of Commerce to calculate the level of tariff needed to restore the US steel industry to 80% capacity utilisation rate.

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