One year into Donald Trump’s presidency and experts in Australia and around the world can hear the grinding of history’s gears.
“We have entered a new economic era; one with rules that are very different to the past,” the Commonwealth Bank’s chief economist, Luke Yeaman, wrote in October.
We exit the heyday of globalisation and its relentless, single-minded pursuit of efficiency, to … what?
At this point it looks like a world of rising trade protectionism, populism, self-sufficiency, suspicion, conflict and crackdowns on the movement of people and capital.
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Trump has exploded so many established norms that his return to the White House seems to have ruled a line between what was before, and what is now and will be.
The “liberation day” tariffs in April last year triggered fears of a global trade war that would smash the world economy.
As US import taxes returned to levels not seen in a century, the Reserve Bank board in May was so worried about the fallout that it considered the case for a supersized double rate cut.
“It’s been a complete rollercoaster,” the RBA governor, Michele Bullock, lamented at the time.
Experts predicted the collateral damage to the Australian economy from rising protectionism could reach $27bn, or 1% of GDP.
Nearly 60% of economists surveyed by the Economic Society of Australia expected the Trump presidency to hurt Australian economic growth, versus 8% – just three of the 39 experts – who reckoned the opposite.
Australia an unlikely winner
So much for the rhetoric, what about the reality? A fair summary would be: so far, so good.
The global economy has not fallen into a hole. Countries have adjusted to American trade aggression and exporters have found other markets or workarounds, at least temporarily.
Yeaman, a former Treasury deputy secretary before his role at the CBA, says he had not been expecting the worst.
Still, he says, “it is a bit of a puzzle: why hasn’t the world been hit harder by tariffs?”
In theory, a medium-sized and open economy like Australia’s stands to be a particular loser in this new era of harder borders and falling world trade.
So far – always that caveat – the opposite has been true.
“Certainly Australia is one of the winners,” says Yeaman, who in a research note earlier this year warned his banks’ clients of that “new economic order”.
Counterintuitively, in a world of higher American tariffs our goods exports to the United States have doubled.
Thanks to an explosion in beef sales and especially gold exports, international sales to the US have gone from $16.8bn in the first 10 months of 2024 to $33.2bn in the equivalent period of 2025.
The “baseline” minimum 10% American tariff applied to Australian imports is bad. But it’s less bad than some of the extraordinary taxes that have been imposed on many other countries, something the Albanese government has been keen to point out.
That has in some cases made our goods more competitive, and in the case of beef has helped drive a boom in sales, helped by American beef producers struggling with drought.
In the calendar year to October, Australian beef sales to the US jumped from less than $3bn in 2024 to $4.2bn in 2025, according to figures from the Department of Foreign Affairs and Trade.
Climbing food prices forced Trump to announce the removal of tariffs on beef and other agricultural products in November.
But the truly remarkable climb has been in gold exports, which surged from $1.2bn in 2024 to $14.6bn.
Fears associated with Trump’s policies have helped turbocharge the precious metal’s price, which jumped nearly 70% last year and hit record highs.
The saving graces
The ANZ’s chief economist, Richard Yetsenga, says Australia’s experience of unexpected resilience is part of a global story.
“Perhaps the most fundamental analytical failure this year was not recognising that much of the impact of the US tariffs was to redistribute trade and production, rather than to destroy demand.”
Experts point to a number of reasons why the world looks in reasonably good shape one year into Trump’s second term.
“Think back to April, when the catastrophising was occurring, and there was a lot of talk about reprisal,” Yeaman says.
Europe and Japan started out talking tough but ultimately countries unfairly hit by high tariffs have not retaliated and so avoided the worst-case “global trade war” scenarios.
“Countries have worked with the US where they can and, where they can’t, they’ve taken the hit and moved on.”
Warwick McKibbin, an ANU economics professor and one of the country’s leading macroeconomic modellers, was never convinced by catastrophic forecasts in early 2025.
Still, McKibbin has been surprised how well things have gone, which he puts down to two main factors.
“The tariff war was not as bad as people thought – it was all show and no substance,” he says.
The other, McKibbin says, has been the boom in investment associated with artificial intelligence, especially in the US where it has delivered a massive boost to the economy and the share market.
“Strip out that investment and most of the US appears to be in recession,” he says.
McKibbin warns that the most immediate danger to the American economy is not from tariffs.
“The AI boom is a bubble and pretty close to bursting,” he says.
Not a bang, but a whimper
The worst-case scenarios that were war-gamed early in 2025 may not have come about but the outlook remains dimmer than it would have been without Trump’s unpredictable “America-first” policies.
The International Monetary Fund’s latest update to its world economic outlook highlighted the “notable resilience despite significant US-led trade disruptions and heightened uncertainty”.
Like McKibbin, the IMF officials were more concerned with an AI-led sharemarket bust than Trump’s erratic policymaking.
But the US’s renewed determination to seize control of Greenland, the brief invasion of Venezuela, and the unprecedented criminal investigation into the chairman of the US Federal Reserve highlight how the American president continues to push the boundaries.
Early last year the RBA’s deputy governor, Andrew Hauser, compared the impact of tariffs to the damage to the British economy from its 2016 decision to leave the European Union.
Hauser, also a former senior Bank of England official, said: “The day after Brexit happened, everyone thought the world would end, and it didn’t. But 10 years on, you’re seeing the profound effects of some of those changes for sustainable growth rates and for fundamental things in the economy.”
McKibbin agrees. He describes the impact as the difference between breaking a leg and getting cancer.
“The global system as we know it is being undermined and all the institutions are being undermined, and the security and other arrangements have all been changed.
“All this is undermining the health of the global economy. There are a lot of risks out there.”
Jenny Gordon, a former chief economist at the Department of Foreign Affairs and Trade, says the world has weathered Trump’s reckless policymaking “fairly well so far”.
“But 2026 could be very, very interesting. It might be the people around Trump say ‘hold on a sec, let’s pull back and think about rule of law’ but I’m not holding my breath,” Gordon says.
Whether China chooses to rein in its massive export surpluses will also play a part in determining the prospects for the global economy in this year and beyond, she says.
The road ahead
In Australia, the year ended with a welcome pickup in growth and a much less welcome rise in inflation.
The economy was projected to expand by 2.3% last year and 2.2% in 2026, according to CBA estimates, a major improvement from 1.3% in 2024.
Higher interest rates loom, with a RBA rate rise or two on the cards this year, the first maybe coming as early as February.
But unemployment is not projected to jump and the fears that haunted economists have not carried over into the new year.
Yeaman says “for 2026 we see a bit more of a positive outlook, led by the US”.
Another round of US tax cuts may ultimately be unaffordable for a country mired in massive structural budget deficits but should buoy activity in the short term.
“But we are in a more volatile world and there are very substantial risks that could derail that,” Yeaman says.
He lists tensions in the South China Sea, the risk of an AI bust, or at least correction, and whether Trump is successful in installing a lackey at the head of the US Federal Reserve.
Bullock’s metaphor of a rollercoaster looks about right.
There will be many more highs and lows before this all plays out.
