Donald Trump’s re-election helped Anthony Albanese win a landslide election, but now threatens to derail his second term of government, with the Labor government’s fortunes increasingly tethered to the US president’s policy agenda.
Trump’s Middle East incursion triggered a huge spike in energy costs, propelling oil prices to their highest level in four years, as fears of a prolonged regional conflict took hold.
An elevated oil price is a major global inflation trigger, given it drives up costs across goods and services in the economy, pushing central banks, including in Australia, to consider rate hikes to keep a lid on inflation.
The resurgence of Australian inflation, already a factor before the Middle East conflict, now risks intensifying, creating a problem for the incumbent government.
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If interest rates move higher, as expected, many voters will be paying increased mortgage rates at the same time as they face elevated prices for everything from fuel to food.
This will make it awkward for Labor’s May budget and the broader second term agenda, given the government will be aiming for policy reform while battling a rearguard action against intensifying cost of living pressures.
While Labor has signalled it will reduce spending at the upcoming budget, any policy that costs money will be criticised by opponents. If unemployment levels start to lift, Labor may not be able to meaningfully help without risking another inflation spike.
These are classic cost of living conundrums. There are no easy answers, and the incumbent will face a backlash no matter what they do.
Many people will look to more populist politicians for solutions; a trend that is already happening among the unhappy electorate.
As my colleagues wrote earlier this month, One Nation might not just be a Coalition problem.
Incumbency is no longer immunity
Consumer confidence is low in Australia, according to customer sentiment surveys run by the major banks, due in large part to inflation concerns.
Fearful voters sometimes vote for incumbent stability, but they won’t if they blame the government for that insecurity.
The question remains, however, whether the Coalition is strong enough, or One Nation viable enough, to take that vote from the government.
While many issues feed into an election result, it’s no coincidence the 2024 “graveyard for incumbents” – the US and UK governing parties among them – came shortly after, or during, surging inflation and associated living costs.
Incumbents – including governments in Australia, Norway and Canada – fared better in 2025 after inflation settled.
In politics, timing is everything.
Shortly after the recent oil price surge, Trump calmed markets when he called the war on Iran a “short-term excursion”, raising investor hopes that oil supply would soon normalise.
Putting the humanitarian fallout created by a fast exit strategy to one side, such a policy would ease immediate concerns of an oil crunch and aid the Australian government.
It’s unclear longer term, however, whether shipping volumes through the crucial strait of Hormuz would just bounce back, or if there would be added risk – and cost – for freight moving through the passage, fuelling global inflation.
The link between Albanese’s prospects and Trump’s agenda won’t come as a surprise to Labor, given US policies had a measurable impact on Australia’s last election.
Peter Dutton adopted part of the Republican blueprint – attacks on public service numbers, work-from-home scepticism and anti-woke rhetoric, to name a few – which worked until it didn’t.
Trump’s “liberation day” tariffs, announced weeks before the Australian election, was a gift for Labor, with the Coalition’s Republican-tinged platform caught in the wash.
While Trump may have inadvertently helped Albanese on that occasion, his Iran excursion won’t.
