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DANIEL:

From Schwartz Media, I’m Daniel James. This is 7am.

Australia is a small player in global trade, compared with giants like the U.S. and China. And when the world's two biggest economies embark on a trade war, we feel the impact.

Donald Trump’s new tariffs on China could send shockwaves through the Australian economy, affecting everything from iron ore exports to the cost of everyday goods.

Australia is making the case that tariffs don’t make economic sense. But with Trump, the usual rules don’t apply.

Today, chief political correspondent for The Saturday Paper Karen Barlow, on how Australia is navigating a trade war it can’t control, and what happens if Trump doesn’t listen.

It’s Monday, February 10.

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DANIEL:

Karen. When news broke that Trump had started hitting Canada, Mexico and China with tariffs, you paid Australia's trade minister a visit. What did he tell you about how big a deal this is for Australia?

KAREN:

Yeah, I had time with the Trade Minister this week.

Audio excerpt — Karen Barlow:

“I mean, with all this going on and talking like a full bore trade war, do you think free trade is under threat at the moment?”

Audio excerpt — Don Farrell:

“Well, no.”

KAREN:

Don Farrell or the Don, as he's known. He's Australia's top trade negotiator. He's a top Labor powerbroker from the right faction. He wants to evoke this sense of calm in the maelstrom while we're getting hit every single day with what's coming out of the Trump administration. He wants to get the message out that Australia has this in hand and despite the other Donald's big stick approach with the rest of the world, this is something that he can address in what he says, a cool, calm and collected way.

Audio excerpt — Don Farrell:

“Cool, calm and collected way of prosecuting the arguments has been successful. Will it be with Trump? Well, time will tell but...”

KAREN:

We are talking about two of the top world economies, U.S. and China, slapping these sanctions on each other. And they may have got this middle power Australia and what it means for us, but this is going to be a top mission for him. As soon as his counterpart, Howard Lutnick, is confirmed as the secretary of Commerce, he will be right in front of him and he wants to get Australia's message out there.

DANIEL:

I like how it’s a tale of two Dons. And so how is the government preparing for any impact on Australia?

KAREN:

Well, the government wants to let Australians know in the first that it's done its homework. Trump and Lutnick have been flagging what they are doing right now for months.

Audio excerpt — Howard Lutnick:

“I think we should put tariffs on stuff we make and not put tariffs on stuff we don't make. It's pretty simple. And of course it's a bargaining chip.”

KAREN:

The Treasurer, Jim Chalmers, has also been talking about what the tariffs mean. He has revealed that he directed Treasury to do modelling on the possible consequences of trade tensions.

Audio excerpt — Jim Chalmers:

“We actually did a bunch of work with the Treasury and other colleagues before the election anticipating either outcome? And I've had the ability to brief my colleagues on a number of occasions.”

KAREN:

Over the past few months. We've had work being done by the Trade Department. Also, we've had Penny Wong as the Foreign Minister talk to Marco Rubio. We've had this mission now by the Defence Minister, the Deputy Prime Minister Richard Marles, to talk to Pete Hegseth, the Defence Secretary in the United States. It's all like this, three ministers going out as soon as possible to say, Well, we don't need to do this, guys.

DANIEL:

Can you give an idea of what the trade relationship is like between Australia and the U.S. as it stands.

KAREN:

Two way trade with the United States is worth $77 billion U.S. dollars annually and within that $52 billion to the United States. And they've bought back $25 billion. So there is a surplus situation here. Australia is one of the top four nations in the world with a surplus and it doesn't make economic sense. This is the message from the Albanese Government.

It doesn't make economic sense to slap tariffs on us. Look what we're talking about here. We could take a step back and go, hey, why are we even talking about this? You know, Australia is a long term political strategic ally of the United States. Well, as Don Farrell tells me in the interview that we had, it's not just about Australia. He'll be actually advocating for the United States not to do what it's currently doing to China, which is this tariff war that's emerging.

Audio excerpt — Don Farrell:

“There's no doubt that an increase in Chinese tariffs to the United States would have an impact in Australia.”

KAREN:

That means a lot to Australia because Australia's largest trading partner by far is China.

Audio excerpt — Don Farrell:

“But we would be advocating for no tariffs on Chinese products.”

DANIEL:

So Don Farrell is more concerned about how that will impact China and the knock on effect that will have for Australia's relationship with with China in a trade sense.

KAREN:

Yeah, it's a rare argument that Australia would go into bat for such a large superpower. But there is self-interest there and that, you know, this could slow demand for big ticket items such as iron ore. You know, that iron ore is what we sell to China, is a significant part of Australia's budget. This is something that could raise prices for goods from China. This could affect inflation. It could raise prices of goods here in Australia.

Audio excerpt — Don Farrell:

“We're not just saying don't do it to us. I mean, we have a strong argument, I think, as to why they shouldn't do it to us. But we're saying, look, free and fair trade is not just in Australia's interest, not just in China's interest. In the longer term, it's in the interests of the United States.”

Audio excerpt — Karen Barlow:

“So when you finally get to have a chat with your soon to be counterpart, that would be one of your main messages.”

Audio excerpt — Don Farrell:

“Yeah.”

KAREN:

This should be a very simple argument that Australia is putting forward. But It's very hard to say how things are going to go.

DANIEL:

Coming up after the break - who is better handling Trump? Labor or Coalition?

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DANIEL:

Karen, the trade minister’s meeting with his U.S. counterpart. Penny Wong has met with hers. Richard Marles has been doing the same.

But we recently had Malcolm Turnbull on 7am. He said the only relationship that really matters is one between the PM and Trump himself. So what's Albanese doing to prosecute Australia's case?

KAREN:

Well, at the moment and remember, we're not in the official campaign, but essentially we're in campaign mode. And so he's being very guarded when he's being asked about Trump. He's being very pointed saying that he's not going to run a daily commentary on daily actions from Donald Trump and all these decisions.

But he does cite that there is a Quad meeting due in June. That's the leaders of the United States, Japan, India and Australia. And so that would happen after the election, which must be held by May 17th. But, you know, he's very much leaving it to the ministers at this stage while he concentrates on the domestic campaign. I don't think he wants to start some sort of fight with Trump in the middle of a domestic campaign, so, let's leave it to the ministers.

DANIEL:

The Coalition is claiming they would be better placed to handle our relationship with the U.S.. So how did the Coalition fare during the last Trump presidency?

KAREN:

Yeah, so referring to Malcolm Turnbull, you know, he often says that he got Trump's measure, even though, you know, there's the power of the United States presidency. He says he stood his ground and he's not afraid now that he's not prime minister anymore to say that he is a bully.

Audio excerpt — Malcolm Turnbull:

“Trump is a bully. He encourages people to suck up to him. You know, notoriously, I didn't do that. I mean, that was partly my personality and partly circumstance, but I think it was a good thing.”

KAREN:

Certainly Dutton, Peter Dutton says that the Coalition and Trump have a lot in common and that they could work really well together.

But Don Farrell immediately scoffs at the suggestion that that is reality. And he points to the China situation in that the whole relationship with Australia's largest trading partner blew up under the Scott Morrison prime ministership when he questioned the origins of the Covid 19 pandemic, and that led to like $20 billion in trade sanctions against Australia, of which Australia is just getting over, still recovering.

Don Farrell says that he's in fact got nine meetings with his counterpart. Things are going swimmingly and this is part of this message to the Australian public in that what the government has done with China, Farrell says that the government will do with the United States.

DANIEL:

Karen, How much harm could Trump’s love of tariffs end up doing not just to America's trading partners like Australia and China, but to the United States itself?

KAREN:

Well, I did speak to Justin Wolfers about it. He is a professor of Economics and Public Policy at the University of Michigan. He's an Australian who's used to be on President Biden's Bureau for Economic Research.

He just says we know exactly what he's doing in that these U.S. threats are to get exactly what he wants. He's thoroughly protectionist and so far it's working. So Canada, Mexico and Colombia backed down within days.

But it's ultimately self-defeating and that when you're talking about self-interest, ultimately you might be getting your foreign policy aims. But at the end, there's a United States consumer who's experiencing increased prices in the middle of a cost of living crisis that is going to bite. So, you know, he describes it as Trump is basically punching the American consumer in the mouth.

At first it looks like Donald Trump is getting a win and that's very important to the United States president. But, you know, that would have to play out over a period of time. And you know, the administration only goes for four years.

DANIEL:

Is that all?

KAREN:

[Laughs]

DANIEL:

Karen, thank you so much for your time.

KAREN:

Thank you.

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DANIEL:

Also in the news,

The federal government has committed more than half a billion dollars to women’s health, including spending on long term contraceptives and menopause treatments.

The government has also added some of the most popular contraceptive pills to the Pharmaceutical Benefits Scheme, a move that will lower the price of the drugs, benefiting an estimated 50,000 women.

And, Australia has paid the United States an 800 million dollar downpayment for its future submarine production, as part of the AUKUS agreement.

In a meeting with Australian defence minister and deputy prime minister Richard Marles, U.S. Defence Secretary Pete Hegseth said US president Donald Trump is aware of and supportive of AUKUS.

The agreement is expected to cost Australia up to 368 billion dollars over 30 years.

I’m Daniel James, this is 7am, thanks for listening.

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