The world is hurtling towards a Trump-caused recession, and the Australian political and economic establishment is entirely unprepared for the impact.
The combination of Trump’s trade and tariff conflicts, brittle global supply and logistics chains, and the wars in Iran and Israel/Lebanon is creating the conditions for a global recession that will hit working people and — I can’t say this enough — Australia is especially vulnerable.
Trump aggressive and volatile trade policies have triggered a massive negative supply shock across the global economy. The International Monetary Fund warns that global prospects are bad, noting that US trade policy uncertainty has increased by 3860 percent compared to a year ago.
These tariff policies are highly inflationary within the US, and the bond vigilantes who control around $30 trillion (!) are already punishing Trump and the US for its deficit spending. US longer-dated bond yields have surged, and last year under Trump the 30-year yield exceeded 5 percent, and is doing so again this year due to the war. Because Australian 10-year bond yields track the US closely, this means higher borrowing costs here at home, impacting anyone with a loan or credit card.
In short, Australia’s economy is financed by US money, and when things get bad there, things get bad here.
This imported inflation is a nightmare for the Commonwealth Government and the Reserve Bank of Australia who are trying to keep inflation under 3 percent. They have been struggling to contain “sticky” domestic inflation — primarily because both the Treasury and RBA are unwilling to tackle the real cause of domestic inflation, corporate profiteering.
An external inflation shock from the USA, and the USA’s oil wars in Iran will force the RBA to increase interest rates and keep them higher for longer.
What did you think?
This will have huge negative impacts for Australian mortgage holders, renters and workers.
Beyond housing, the main belief that the classical liberal and market fundamentalist economists at the RBA have to reduce interest rates is to cause unemployment. This connection of “higher unemployment reduces inflation” is a critical, central tenet of “standard” economic theory.
The economic and financial models used by central banks like the Reserve Bank of Australia or the Federal Reserve in the USA assume that the inflationary problems are due to workers “misbehaving” by asking for too much money in wages. Their secondary (but equally important) mission is to protect the value of money of creditors (the people who lend money).
Their ideology states that higher unemployment reduces “upward pressure on inflation” because it reduces the discretionary amount of money workers have to spend. The Reserve Bank and other central banks therefore purposely create or engineer joblessness. (Link)
This will obviously worsen the Trumpcession in Australia — more people unemployed creates more misery. It also increases pressure on the Commonwealth budget, because those unemployed people will increasingly call upon social services and income support once their savings are depleted.
This further entrenches the Commonwealth’s reliance on bond markets, because Treasury will need to increase borrowing. Those bond markets will put pressure on the government to cut social programs and welfare, and inflict more austerity.
See how this works?
Adding fuel to this economic fire is the US-Israeli instigated war on Iran. This unnecessary and immoral war has brought shipping traffic through the Strait of Hormuz to a virtual standstill.
The Strait is a critical chokepoint, and its closure has sent oil “spot prices” skyrocketing by up to 60 percent. The result of this is that transport and supply chain costs are about to explode across the world — and again, Australia is especially vulnerable to this because we export the majority of the fossil fuels we produce.
While you pay the price for Trumps war on Iran at the petrol station and the supermarket checkout, multinational fossil fuel corporations are war profiteering. US oil companies alone stand to receive a massive windfall of more than $90 billion this year due to war price spikes.
As I have said, Australia’s economy is uniquely vulnerable to this geopolitical crisis.
Our national income relies heavily on commodity exports to Asia (especially China) and investment from the US. The US has aggressively tried to contain China’s economy with harsh tariffs and semiconductor export controls — this caused price and supply instability of a wide range of goods last year and continuing into 2026.
The highly volatile and unpredictable Trump White House will continue to disrupt the supply chains into the Asia Pacific and Australia’s economy will suffer. In Australia, we have a fantasy that we are sovereign, but in reality our governments are subordinated to US bond markets and the US Federal Reserve.
Despite these looming threats — or perhaps because of them — our domestic political debate remains totally divorced from reality.
The Federal Government and the Opposition are currently proposing minor spending cuts and incremental tax changes. This is a massive crisis that will likely soon turn into a major global economic catastrophe — cruel cuts to the NDIS isn’t going to lower petrol prices. But it will cause misery to the most vulnerable and discipline workers into not demanding higher wages or more public services.
The mainstream media is utterly mystified, and most “serious” commentators cannot imagine an alternative reality to the RBA’s immoral logic of forcing mass sackings of tens of thousands of people.
We know how big business will respond to this crisis.
History shows that the foreign-owned corporate sector and monopolies use global supply shocks as an excuse to drive up their profit margins. This incoming wave of imported Trump inflation will give monopolies in Australia the perfect cover for unchecked price-gouging.
It’s crucial to understand this. The RBA and other neoliberal commentators and politicians say that inflation is caused by an “overheating” economy that needs to be “cooled” by higher interest rates. As I’ve written before, they offer laughable examples of Gen Z consumers lining up for matcha yoghurt as the cause of the overheating.
In fact, the “overheating” is caused by corporate price gouging — technically, the increase in unit profit above input cost increases from external causes (like supply chain shocks)
What’s even more galling is that we still suffer the “resource curse” — where we export the raw commodities (gas, oil, coal) and then pay the global “retail” prices to the foreign mining companies.
In a single recent year, Australia exported $86 billion worth of gas. We collected only $1.9 billion from the Petroleum Resource Rent Tax. Effectively Australia gave away $84.1 billion worth of gas, almost entirely to foreign-owned fossil fuel companies.
This means that everyday workers pay more tax on beer than the gas cartels paid in tax on the gas that Australia owns. (Link)
Also important to know that the global commodity “spot price” system is relatively new — until the 1980s, commodities were bought and sold with long-term, stable contracts. Now they are subject to the whim of finance-bros in Wall St who literally add no value to the exchange but add lots of costs and risks.
Long-predicted, the death of the neoliberal globalised free-trade order that sustained Australia for a century is finally arriving. The Trumpcession is the surface-level expression of a deeper structural collapse of the neoliberal rules-based order into a more nakedly aggressive hyper-imperialism that really started around 9/11.
Hyper-imperialism simply means that the US has abandoned the smoke-screen of international rules-based order and now relies on highly aggressive and extractive financial colonialism backed by industrial scale ultra-violence. Tariffs and sanctions extract tribute and leaving export-dependent middle powers exposed, while threats of, and actual, invasions, bombings and kidnappings of heads of state enforce US primacy.
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And if it isn’t clear why Australia is especially vulnerable, as I tediously keep saying, it is because of our specific role in the global division of labour and commodity production.
Our economic position globally is as a primary producer of raw materials (energy/minerals) whose financial architecture is tethered to Wall Street. The RBA is the local enforcer of the will of Wall Street and the US Federal Reserve.
The Trumpcession will soon hit Australian workers. The public is already exhausted by the corporate greed-inflation shocks from the post-COVID period and decades of neoliberalism. Between worsening housing costs, stagnant wages, and the inadequacy of income support, the real living standards of working people have been steadily falling for over a decade.
The coming, highly likely severe global downturn will push Australia’s brittle social and economic systems to the brink of collapse.
Tinkering around the edges of the budget will not save the Australian economy from Trump and his hostile US government. A global economy in crisis will hit Australia hard.
We need bold, radical, structural reforms that are in the interests of Australia’s people, not the corporate executive class and the US shareholders that own most of the ASX 200.
Peak bodies, NGOs and unions are calling for the broken tax system to be replaced with a 25 percent export levy on liquefied natural gas, which could capture tens of billions of dollars to provide immediate cost-of-living relief.
We must build real economic democracy. This means strong laws that empower workers and unions, and encouraging cooperative ownership models. We need to treat essential services, including internet and data centres, energy, water, transport, telecommunications, as public rights and social goods rather than profit centres for corporate monopolies. We need to take back control of our natural resources like the gas and oil fields.
Neoliberalism has failed. It has delivered a society that more miserable and fractured, where people are alienated, precarious and angry, and the crisis of the status quo has left Australia at Trump’s mercy.