America's economic and political chaos has implications for Australia

Australia Broadcast Center

4 hours ago

The gripping stoush between Donald Trump and Elon Musk was emblematic of America's slide into a kind of corrupt flakiness.
Yesterday's decision to call in the National Guard to put down immigration protests in Los Angeles was equally gripping, but much more serious.
Californian governor Gavin Newsom called it "purposefully inflammatory", which looks spot on. Remember Trump's use of emergency declarations to impose tariffs. Meanwhile, tanks were rolling into Washington DC ahead of the big autocracy-esque military parade on June 14, which happens to be the president's birthday.
America has become a bewildering blend of the ridiculous and the deadly serious, and the implications of this for Australia are profound.
The unserious nature of the place is reflected in the nation's president and richest person fighting in public: picture Anthony Albanese and Gina Rinehart abusing each other on social media.
But that analogy falls well short because only two weeks ago Musk was a close adviser and effectively a member of cabinet, responsible for the closure of significant government programs, tens of thousands of retrenchments from the federal public service and a full re-ordering and centralising of government data on all Americans.
Now, Musk is outside the tent, as they say, weeing in, except it's a torrent, including ferocious opposition to Trump's "One Big Beautiful Bill".
That 1,038-page bill with its ludicrous official title, and all sorts of unrelated things thrown in so it would be hard for Congress to reject each bit, was an earlier sign that the United States has become a bit of a joke and not a serious country anymore.
What's not a joke is that the oligarch Musk obviously thought he had bought the presidency and is complaining now that having spent $US300 million getting Trump elected, the guy is not doing what he is told.
"Such ingratitude," he posted on X.
In response, Trump threatened to terminate Musk's government contracts, not because they're bad contracts but because he's "disappointed" with Musk.
As economist Paul Krugman wrote on Substack: "The point is that both men start from the presumption that the US government is an entirely corrupt enterprise, with the president in a position to hand out personal favours or engage in personal acts of vengeance."
Examples of America's unseriousness have been building to the point where the US isn't even a comprehensible ally, let alone a reliable one, or a safe place to invest — global investors are now steadily reducing their exposure to American assets.
The tariffs on the ridiculously named "Liberation Day", April 2, were a hastily assembled mess.
The ones other than the arbitrary 10 per cent "base tariff" were calculated with a simple sum using each country's trade deficit, which was plainly bonkers, and included uninhabited islands as well as tiny countries that had virtually no trade with the US.
And then, a week later, they were replaced by a whole new set of tariffs.
Then Trump complained that China won't do a deal, having been whacked with the threat of a 145 per cent tariff, which was reduced to 30 per cent for no apparent reason.
Then Trump asked for a phone call with Xi Jinping, got it, and then meekly chickened out, confirming his TACO nickname (Trump Always Chickens Out).
Trump met German Chancellor Friedrich Merz last week and, with cameras rolling, Merz noted that the following day, June 6, would be the 80th anniversary of D Day.
"That was not a pleasant day for you," said Trump. "This is not a great day."
Merz replied: "This was the liberation of my country from Nazi dictatorship."
Oh, right.
Last Wednesday, without warning, Trump banned citizens of 12 countries from travelling to the US.
Before that, he posted that "Because of Tariffs, our Economy is BOOMING!", which is plainly divorced from reality.
The Bureau of Economic Analysis had announced a week earlier that the US economy contracted by 0.2 per cent in the March quarter, and a few hours later, the OECD predicted that growth in the United States will decline from 2.8 per cent in 2024 to 1.6 per cent in 2025 and 1.5 per cent in 2026.
At about the same time, the Congressional Budget Office released an assessment of the impact of the tariff policy, saying it would raise inflation and slow economic growth as consumers bear the cost of them.
The CBO also produced an analysis of the "One Big Beautiful Bill", which it said would add $US2.4 trillion to the deficit over the next decade because the $US1.3 trillion in spending cuts won't fully offset the $US3.7 trillion in tax cuts.
By the way, the Big Beautiful Bill also contains a "revenge" provision that would allow the US government to impose extra taxes on foreign investors whose home countries have policies America doesn't like, which is not the sort thing that's going to endear a country to foreign investors.
As a result of all this, the "American exceptionalism" that was the foundation of global investment and finance for decades, is over.
Does that mean the US dollar will lose its place as the world's reserve currency, a position it has held since 1944?
Probably not, but its monopoly is under threat.
As exceptionalism dims, there will be a shift towards other currencies, mainly the euro and, to some extent, the Japanese yen and Chinese yuan.
The US dollar still accounts for 58 per cent of global foreign exchange reserves, and the euro is second at 20 per cent.
The fact that gold is hitting new record highs, and the euro has appreciated 15 per cent this year, shows that central banks and global investors are looking for foreign exchange alternatives.
The US dollar has about half of SWIFT transactions (it's the global banking communications network), with the euro second at 22 per cent. While the US dollar is used in 55 per cent of global trade, the euro is next at 30 per cent.
There is no complete alternative for the US dollar in sight at this stage, but that could change, and even a 10 per cent reduction in its use in trade, foreign exchange and banking would have a meaningful impact on asset valuations in the US, including shares.
Australian Prime Minister Anthony Albanese is due to meet Trump later this month, and like other heads of state who have ventured into the White House, he could quite easily take a beating in the Oval Office, on camera.
Trump seems to think Australia has a ban on American beef, which isn't true, but the Australian PM could still find himself arguing biosecurity with an aggressively uncomprehending American president.
Beyond that meeting, Australia needs to rethink its relationship with the United States.
We've done quite well maintaining a wary, non-trusting trade relationship with China.
We now need a wary, non-trusting security alliance with the US, if that's even possible.
Alan Kohler is finance presenter and columnist on ABC News and he also writes for Intelligent Investor.