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Trump tariffs could split world into blocs, warns former DFAT chief economist

Jenny Gordon says Trump’s trade policies risk forcing nations to choose between the US and China, with serious consequences for trade, investment and security.

Jennifer Duke
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Balancing relations between China and the US is likely to get harder, with Australia being encouraged to make use of partnerships in the region. AAP Image/DPA Fernando Gutierrez-Juarez.

A former Department of Foreign Affairs and Trade official has warned that Donald Trump’s proposed tariffs risk dividing the world into two economic blocs — one led by the US and the other by China — with far-reaching consequences for trade and investment.

Jenny Gordon, DFAT’s chief economist until 2021 and now a nonresident fellow at the Lowy Institute, said many countries would be “looking at ways to try and avoid having to choose a bloc”. However, she acknowledged that such a division remains a distinct possibility.

“If the global economy goes that way — you belong to one bloc or another bloc — it’s going to be painful," Gordon said at an Economic Society of Australia panel on Thursday afternoon. "And I don’t know how the international institutions hold up and operate under that environment."

“If they decouple on trade … then you have to decouple on investment. We’ve already got these really strong investment links,” she said. “And then are you going to decouple on financial services?”