Trump's tariffs are all about hot and cold wars and retooling the USA

Trump imposing tariffs on Australia was perhaps inevitable. Trump 2.0 is not the Trump 1.0 who negotiated free trade agreements with the Canadians and the Mexicans which he is now tearing-up, so it would be naive to think he would renew the exemption for Australian trade he granted in his first term.

It's still possible we might get a reprieve as his tariff moves appear mercurial and are not based on trade alone but on strategic or tactical advantages he can get in return for his threats to impose tariffs.

We don't know what the Albanese government was offering, but like the Ukraine we have substantial rare earth deposits - perhaps there is a trade to be done there. Certainly the next federal budget needs to realistically lift defence spending to 3% in the near term, not in the far-distant future beyond the forward estimates.

The government also needs to be ruthless in its diplomacy, which should include recalling Kevin Rudd as ambassador. Not only has he insulted Trump in the past (not a smart strategy as Volodomir Zelenskyy could tell him), but his shambolic two terms as PM suggest he is not the right person to be negotiating with the Americans.

Trump's tariffs are about two wars. The cold war with China, meant to pre-empt a hot WWIII, and the hot war between the Republicans and the Democrats.

One aim of his tariffs is to reshore manufacturing in the US so that it has the logistical strength to match China. The Allies won WWII because America was the manufacturing hub of the world. That mantle has shifted to China. Without manufacturing strength, the USA cannot win a cold war.

Another aim is to reward key constituencies that returned him to power. He's more concerned about steelworkers in Pittsburgh than in Whyalla because they deny the Democrats a domestic victory.

He also seems to think that tariffs are a good way to raise taxes. There are some good economic arguments in favour of that, as long as the tariffs are uniform, but no country has substantially financed itself on import duties for over 100 years. That will become apparent, and I suspect that aspect of the tariffs will be quietly shelved.

It would be foolish for Australia to apply reciprocal tariffs. We are a small trade-exposed economy where 46% of our GDP is exports and imports whereas the US is the largest economy in the world and has a much smaller trade exposure with only 25% of its GDP involved in trade.

To protect our industries we need to ensure that they are hyper competitive. It is beyond imagination, but if Albanese wants to ensure the survival of Australia's steel and aluminium industries, then he will drop the renewable energy fantasy and stop trying to run major industries on sunbeams and zephyrs. He would also reverse the productivity-throttling industrial relations legislation that he has introduced which will gradually squeeze the innovation out of Australian industry.

However, it is also clear that the whole world is going on a war footing, and we need to gear up to meet it. The US is pivoting to the Indo-Pacific, and we are a vital part of the alliance, but we are going to need to do much more in the future than send a detachment of 2000 mostly SAS troops to join the Americans as we have managed to do in the more recent conflicts since Vietnam like the second Iraq War.

Like Trump we need to assess our needs and our vulnerabilities and act to meet or close them. Mere expenditure on weapons and weapon systems is not enough. We've been spending more than most European countries, but our defence is brittle and ineffective and we do not have the type of economy that can support it – too many NDIS workers and accountants, and not enough engineers and skilled tradesmen.

Much of Trump's actions are performative - meant to invoke a reaction. When he gets the appropriate reactions I suspect things will quieten down and relations will normalise. By that time the whole world will be working on a war economy basis. We need to be as well.