Donald Trump is a blow to Australia on climate and trade. Here’s how we minimise the damage | Ross Garnaut

The idea of open international exchange that framed the Australian reforms of the late 20th century and its subsequent economic success are being challenged in the 21st century. The challenge is intensified by the restoration of Donald Trump as president of the United States. He is committed to higher protection, tax cuts that will set record highs for budget deficits, a trade war with Australia’s largest trading partner with a risk of worse, and separation of the United States from the rules-based international trading system. He is also committed to withdrawal from international cooperation and domestic action to reduce climate-changing emissions of greenhouse gases. Global financial crisis is not out of the question.

These developments will damage Australian interests. Global long-term interest rates set a base against which Australian rates settle, and will be higher than they would otherwise have been. International inflation will be higher, increasing Australia’s own inflation challenge. Australia is the developed country that has most to lose from a failure to stop global heating. Australia has more to gain economically than any other country from success in the world achieving net zero carbon emissions, as an exporter of zero-carbon goods to countries which lack rich renewable energy and biomass resources of their own.

Australia’s own commitments to open multilateral trade and strong public finances are more important than ever. Both are challenged by the encouragement Trump’s America gives to protectionist and inward-looking sentiment here and in other countries.

The US is a relatively small market for Australian goods and services. The main damage to Australian trade will be indirect, through any slowdown in growth in China and other Asian trading partners. The extent of the damage will depend on how Australia and its other international partners respond. Here the rest of the world’s interest is in more open international exchange as the US closes. The most constructive response is to further liberalise trade. The additional gains from trade will offset, and if we go far enough, more than offset, the damage from increased US protection.

The political instinct of polities affected by new US barriers against their exports will be to retaliate by raising barriers against the US. That would increase the damage to the retaliating countries. It would also increase the difficulty of bringing the US back into the open international trading system when domestic political developments make that possible. Americans, Australians and others share interests in the US returning to the open trading system – a system established by the US with support from others after the second world war and from which the US and the rest of us have received immense benefits.

The rest of the world should seek to preserve the institutions of the rules-based international system during the US time out. We have had some practice with this over recent years, and know that it can work. This, too, increases the chances of an early US return.

On climate change, too, the damage can be minimised if the rest of the world maintains its progress – and the institutions through which it is being achieved – as the US retreats. It is possible that the US will continue to reduce emissions through a new Trump presidency. State and city action will not be affected. And it is not certain the Inflation Reduction Act and other Biden policies to reduce greenhouse gas emissions will be greatly damaged under the new Trump presidency, despite promises to the contrary. Texas – Trump country – has been the biggest beneficiary, now generating twice as much solar and wind power as California. The votes of congressional representatives from Texas and other renewables-rich red states would be necessary for any repeal. Economic interests may prevail over ideology.

The US was never going to be a significant player in global markets for inputs and outputs of the zero-carbon economy. So long as other countries maintain their efforts, progress towards agreed global goals on climate can continue. It helps that the world’s biggest emitter of greenhouse gases, China, may have reached peak emissions seven years ahead of its international commitments, in 2023. China sees an advantage in global geopolitical competition with the US in stepping up its efforts as the US steps out of the international climate arena.

In climate as in trade, Australia’s and the rest of the world’s best response to the US withdrawal from international cooperation is to remain steady, and if possible to deepen cooperation among themselves.

One consequence of US withdrawal from international cooperation on trade and climate will be diminished US influence in the rest of the world. Already the increased protection and budget deficits since early in the first Trump presidency, maintained through the Biden years, have reduced US competitiveness in global markets. This has helped to make China the leading trading partner of many more countries than the US. The disparity will widen. That is a pity. But by remaining steady in trade and climate policies and avoiding retaliatory actions against the US, the rest of the world can increase the chances of an early US return to influence.

• Ross Garnaut is professor emeritus in economics at the University of Melbourne and the Australian National University, and a director of both Zen Energy and The Superpower Institute. These ideas are developed in Ross Garnaut’s new book, Lets Tax Carbon and Other Ideas for a Better Australia, published by Black Inc with Latrobe University Press