Trade tensions tipped to drag on regardless of Trump or Biden victory

A panel of Australia's top economists has warned the nation will face escalating global trade tensions and volatility whether US President Donald Trump or Joe Biden wins the November election.

Independent economist Saul Eslake was scathing about the effects on global stability of a second Trump term. He described the US President's handling of the world's biggest economy as "an unmitigated disaster" that had increased the US budget deficit, driven up prices, emboldened dictators and undermined the confidence of allies.

Economists are warning instability will remain regardless of whether Biden or Trump wins the election, but trade relations with China looms as a wild card.Credit:AP

"Re-election of Trump would be a terrible thing for America, for America's allies (whom Trump has treated with contempt), for our region … and for Australia," Mr Eslake told The Sydney Morning Herald/The Age's Budget 2020 Scope Survey.

"I can't think of an election in which I have more wanted the incumbent to lose … since the Tasmanian election of 1989."

He hoped Mr Biden would reverse "appalling trade policies" and corporate tax cuts, provide leadership to combat climate change and improve issues of racism in the US if he won.

Australian Council of Trade Unions chief executive Margaret McKenzie warned a Trump victory would "herald further chaos and unpredictability in the world economy".

"We should understand that we need to preserve a relationship with our biggest trading partner, China," Ms McKenzie said. "Accordingly we need to distance ourselves from the US position, Biden may soften this and be less protectionist generally."

St George Bank chief economist Besa Deda said a Democratic president was more likely to lean towards greater social assistance, with business footing the bill.

"A continuation of a Republican president would maintain the volatility of current policy trajectories. These trajectories have created a degree of uncertainty among investors," Ms Deda said.

AMP Capital chief economist Shane Oliver said the knee-jerk reaction from the market to a Trump win would be a positive for the US, with lower taxes and regulation expected, but a negative for the global economy including Australia.

"A Biden victory would be [seen by the market as] a better outcome for the rest of the world via smoother, more predictable policy making, a return to traditional foreign policy relationships and a more diplomatic approach to resolving trade issues," Dr Oliver said.

"Ultimately, I suspect that Biden, if elected, will go easy on tax hikes and that a return to more stable policy making and avoidance of trade wars will benefit both the US and the rest of the world including Australia."

However, University of Melbourne professor Neville Norman warned Mr Biden "could do more damage than Trump" on issues of trade deals with Australia and interest rates.

Newcastle University professor Bill Mitchell was also more circumspect about a future under Mr Biden, saying he did not necessarily think he would be more progressive than Mr Trump on issues such as health care, the environment and social policy.

Prof Mitchell said Mr Trump had spent freely on the wrong things but had broken the narrative about debt ceilings while Mr Biden was more fiscally conservative.

"The style will be different but the substance will largely remain the same," he said.

"The only substantial shift might be on the way the US views China, which may impact on our relationship with China for the better given that Trump has been the first international leader to really call China out over various matters."

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