Since taking office, Trump has commenced withdrawal from the Paris Climate Agreement and paused Biden-era climate finance, fulfilling his promise for a return to the protectionist era. What does this mean for decarbonisation and the world’s biggest currency, and how can Australia weather the storm?

The Albanese Government’s announcement of the Future Made in Australia package was in many ways a response to the Biden administration signature climate policy, the Inflation Reduction Act 2022 (IRA). The thinking in Washington was that since efforts to reduce old carbon-intensive industries had proved political poison, the best path towards decarbonisation was to simply get on with the job of building new clean energy alternatives. This involved a return to the industry policy of the post-war era through a system of production tax credits and consumer rebates for advanced manufacturing on renewable energy components, electric vehicle purchases, energy efficiency upgrades, and many other decarbonisation technologies. Most of these policies have direct comparisons either in the Albanese Government’s Future Made in Australia package, or various special investment vehicles such as the Clean Energy Finance Corporation and Australian Renewable Energy Agency.

The question now on many policymakers’ minds is whether a policy approach inspired by Biden’s America will survive the Trump sequel.

Diplomacy and Trade

By exiting the Paris Agreement, the U.S. once again joins a very short list of countries—shared only with Iran, Libya and Yemen—that don’t have a seat at the table of one of the world’s biggest diplomatic conferences. Countries in the Asia-Pacific region particularly are increasingly viewing climate action credentials as a key consideration in their level of diplomatic engagement with strategic partners. This is only heightened by the general level of anxiety brewing in the region about the future of their trading relationships.

Trump’s agenda of tariffs attempts to reverse the U.S. trade deficit, effectively withdrawing its currency from international markets, and with it, a key source of stability for investors and exporters. Given the U.S. runs multi-billion dollar trade deficits with APEC, you can expect the region to be in the Trump Administration’s tariff crosshairs. This should be cause for concern for those who are interested in decarbonisation, as key to ensuring the continued growth in global clean energy deployment is a steady stream of reliable, well-recognised climate finance.

Although the withdrawal of IRA funds may free up those resources for other countries to pursue, the lack of security provided by the USD will likely lead to a period of investment uncertainty, affecting all international markets, not just clean energy ones. These markets will naturally pursue alternative sources of finance that provide the greatest level of stability, and from the resulting period of correction may emerge a new multi-monetary regime, divided across trade agreement boundaries and dominated by countries who demonstrate their willingness to cooperate in global decarbonisation.

A policy ostensibly intended to increase the economic weight of the U.S. by increasing net exports, may well be the very thing that undermines the one export that really matters: the mighty USD.

Monetary Hegemony

The USD is currently used in 88.5 Per cent of foreign exchange transactions, maintaining the thumping lead over all other currencies it has held since the Bretton Woods Agreement. The primary credentials a currency needs to denote international settlements are:

a) Well-developed financial markets,

b) Stability of the issuing country’s political regime and trade,

c) Stability of the issuing country’s economic growth.

The AUD seems to fit the bill remarkably well for an economy of our size. Our financial system and export sectors remain strong, open and stable. We have had the same federated Westminster system of Government since 1901, and have managed to keep out of recession (outside of the pandemic which was not caused by business cycles) since the early ‘90s—no mean feat.

The AUD demonstrated its potential for monetary leadership when it held the position of 5th most traded currency from 2010 to 2019, until the CNY gained ground in 2022. However, much of this stability can be put down to our significant mining exports, particularly coal, a commodity from which most countries-including our major trading partners-are trying to substitute away. Moving forward, as international markets for carbon-intensive commodities wane, Australia’s resources sector will need to change, or be left in the coal dust.

The Future Made in Australia package sets up the opportunity to benefit from local employment in clean energy industries, and diversify export markets with higher value-add. With abundant reserves of lithium, bauxite, iron, and rare earth minerals—all crucial inputs to clean energy technologies such as batteries, photovoltaics, and wind turbines—our sunburned country of sweeping plains is well suited to developing the solar and wind energy capacity, backed by batteries, pumped hydro, and interconnectors needed for low-cost green steel and aluminium industries. As nations in our region such as Singapore, Thailand, the Philippines, Indonesia, Vietnam, and Malaysia power ahead with decarbonisation plans, many leaders are seeking reliable partners—an opportunity Australia is uniquely positioned to seize.

On the surface, Trump’s election victory and withdrawal from the global decarbonisation race may seem like a case for climate pessimism. Actually, it is an opportunity for Australia to step up as a climate leader, to own the narrative, and to push ahead with the development of cutting-edge clean energy industries that revitalise communities with investment and employment, enhance productivity with cheaper, cleaner energy, and support our regional partners in their decarbonisation through stronger, more diverse, lower carbon exports.

Ray Newland is the Founder and Executive Director of the Youth Climate Policy Centre, and Chair of the Macquarie University Economics Society. He has five years of experience working in the public service at a local and federal level, and is currently pursuing a Bachelor of Economics at Macquarie University.