October 2025

Australia’s economy showed resilience in September, with inflation remaining sticky and the RBA holding rates steady at 3.6%.

Headline CPI rose more than expected, from 2.8% to 3% prompting analysts to push back forecasts for further rate cuts until November or early 2026. Core inflation fell slightly to 2.6%, edging closer to the RBA’s target band, but price pressures persist in housing and services.

GDP grew 0.6% in the June quarter, driven by a rebound in consumer spending and solid wage growth. The unemployment rate held steady at 4.2%.

Despite cautious consumer sentiment – the Westpac-Melbourne Institute Consumer Sentiment Index fell 3.1% in September – business confidence remains upbeat, particularly in retail and manufacturing.

Despite the August/September period noted for being seasonally weak, markets remain at near record levels. The ASX 200 was supported by strong performance in banking and mining stocks. US equities, meanwhile, continue to push higher off the back of the AI boom and anticipation of rate cuts.

Commodity prices and risk appetite helped the Australian dollar touch an 11- month high before easing slightly.

Market movements and review video – October 2025

Are you a glass-half-full or glass-half-empty investor?

When you think about the markets, do you see promise or peril? Are you the type to believe the glass is half-full, or do you focus on the half that is not there?

Your investing outlook can shape your decisions, influence your risk tolerance, and impact your long-term results. But which approach truly works best? Should investors lean into optimism or prepare for the worst?

The historical case for optimism

Historically, optimism has served investors well. Over the past century, markets in developed economies have consistently trended upward. Despite wars, recessions, political turmoil, and financial crises, the long-term direction of major stock indices like the S&P 500 has been positive. Investors who maintained confidence during turbulent times and stayed invested often reaped the rewards of compounding growth. This pattern suggests that a fundamental belief in human progress and economic expansion is more than just hopeful thinking.

Optimism encourages long-term thinking. It allows investors to endure volatility, view market declines as temporary setbacks, and see opportunities where others may only see risk. Warren Buffett, one of the world’s most successful investors, has repeatedly emphasised the importance of having faith in the future. As he famously said, “I am an optimist. It doesn’t seem too much use being anything else.” That sentiment reflects a mindset that has allowed him to stay the course through numerous economic cycles, always betting on the long-term resilience of markets and the human spirit.

The value of pessimism and caution

However, optimism alone is not enough. Investors who ignore risk in favour of hope can find themselves vulnerable when markets correct or when unexpected events occur.

Pessimistic investors tend to focus on risk management, as a pessimist always keeps in mind the possibility of the worst outcome. A pessimistic outlook helps investors anticipate potential downsides and implement strategies to mitigate risks, such as diversification and hedging. This cautious approach reduces exposure to unnecessary risks and prepares them for uncertain times.

Additionally, pessimistic investors are more likely to develop contingency plans for various scenarios, including economic downturns or unexpected personal events.

Thinkers like Nassim Taleb have built entire investment philosophies around recognising fragility and preparing for the unexpected. He is quoted as stating, “Invest in preparedness, not in prediction.” His approach emphasises the importance of stress-testing ideas and maintaining a strong margin of safety.

Balancing both perspectives

Many of the best investors are neither permanent optimists nor permanent pessimists. Instead, they are what we might call rational optimists. They believe in the long-term potential of markets and innovation but constantly evaluate risks and remain grounded in reality. This blend of forward-looking confidence and present-day caution allows them to stay invested without becoming reckless.

Rational optimism is not about predicting every up or down in the market. Rather, it is about applying common sense, preventing avoidable mistakes, and trusting that the long-term trend of progress will continue, even if the road is sometimes rough.

A practical, realistic approach

In practice, rational optimism means staying invested during downturns while managing risk thoughtfully. It involves having a plan that includes diversification, consistent rebalancing, and emotional discipline. It also means resisting the urge to overreact to headlines, hype, or fear.

The optimistic side helps investors believe in the future and recognise long-term opportunities in innovation, global growth, and improving productivity. The cautious side ensures they are not overexposed, overleveraged, or overconfident.

A rational optimist wins in the long run

The most successful investors are those who combine the belief in long-term progress with a realistic understanding of their tolerance of risk and risk management strategies. Investors should lean toward optimism to build wealth but temper it with a healthy scepticism to protect it. The ideal mindset is neither naive nor cynical. It is confident, but not careless. Hopeful, but prepared.

As Buffett suggested, it does not do much good to be anything other than optimistic. But as the great investors remind us, that optimism must be paired with careful thought and strategy. Believe in sunshine but carry an umbrella. The markets, much like life, reward those who prepare for the storms but never lose sight of the clearing skies that follow.

New aged care act: what you need to know

Sweeping reforms to aged care are set to begin on 1 November to help improve the quality, transparency and flexibility of care.

With more care levels, clearer pricing, and greater control over how your funding is used, the new system aims to better match services to individual needs. Providers will be required to offer detailed cost breakdowns, empowering you to make informed decisions about your care.

While the reforms are a step forward in care quality, they also come with changes in how services are funded and that may mean higher out-of-pocket costs for some.

What you pay depends on your financial situation – whether you receive a full or part pension or are self-funded – and the services you access.

As the aged care landscape evolves, staying informed is key to making confident choices. Whether you’re planning for yourself or supporting a loved one, understanding the new system will help you access the right care at the right time. 

Help at home

From 1 November the current Home Care Packages will be replaced by a new program called Support at Home.

The key changes include:

• Eight levels of care (up from four) to better match individual needs
• Extra funding for assistive technology, home modifications and palliative care

Services are expected to remain the same but the way you pay for them may change.

• For example, clinical care (such as nursing or physiotherapy) will be fully funded by the Government.
• You may pay more for everyday living services (such as meal preparation or cleaning) than you do for independence supports (like personal care or transport).
• The out-of-pocket costs for everyday living will range from 17.5 per cent for full pensioners to 80 per cent for self-funded retirees.
• Non-clinical support, like showering, will cost five per cent for full pensioners to 50 per cent for self-funded retirees.

If you were approved for a Home Care Package on or before 12 September 2024, you will be eligible for fee concessions to ensure you are not worse off under the new rules.

The package level you are assigned sets the total funding available to pay for care, with 10 per cent allocated to the care provider to cover the cost of care management.

You then work with your provider to decide how you want to spend the rest of the budget. The provider will set their fees for services and you will make a contribution based on your income.

Residential aged care

Room prices in aged care facilities have been steadily rising following an increase in the Refundable Accommodation Deposit (RAD) threshold from $550,000 to $750,000.

Higher RADs mean you may need to use more of your savings or income to cover aged care costs.

From 1 November 2025, anyone who moves into care after this date and pays a RAD, will have two per cent of that amount deducted each year, for up to five years.

You can still opt to pay a Daily Accommodation Payment (DAP), but this will increase every six months in line with inflation.

Other fees include:

• the basic daily fee (set at 85 per cent of the single age pension)
• a means-tested fee or non-clinical care contribution
• potentially a higher everyday living fee (previously known as extra or additional services)

Fee caps and planning ahead

The lifetime cap on aged care contributions continues. You won’t pay more than $130,000 (indexed) over your lifetime towards home care and residential care combined.

Understanding how the changes affect your financial future is vital. You’ll need to consider:

• whether someone will remain in the family home
• your current income and assets
• potential age pension entitlements
• estate planning strategies

Use the government’s fee estimator at MyAgedCare to get a clearer picture of your potential costs.

Get advice early

Navigating aged care can be complex and the upcoming changes add new layers of decision-making.

We can help explain your options, structure your assets, minimise fees and plan for your future care needs.

If you would like to discuss your aged care options, please give us a call.

Estate planning

How to develop an estate planning strategy to deal with your assets in the event of your death.

Estate planning involves developing a strategy to deal with your assets after you die – the legal instruments and structures, such as a will, you put in place to transfer your assets in the event of death.

Tax is a major consideration in estate planning, and strong governance relating to the tax aspects of estate administration can help manage the risks.

Ensure you or your staff have sufficient knowledge and skills to meet your responsibilities. Be prepared to seek assistance from external advisers on more complex tax issues.

Developing an effective strategy

Estate planning may be considered as part of your overall succession plan for your business. You may need to seek specialist advice on the most appropriate estate planning strategy.

Have a process in place to periodically review your strategy in conjunction with your advisers, including your legal, tax, superannuation and financial advisers.

Beware of schemes that claim to have estate planning purposes but are merely tax avoidance arrangements. An effective tax governance framework includes processes for evaluating various arrangements and the tax risks involved.

Preparing a valid will

If someone dies without a valid will, this is called ‘dying intestate’, and their assets are distributed according to the inheritance laws of the states and territories of Australia. In this case there is a risk that the undocumented intentions of the deceased person in relation to their estate may not be fully acted on.

Depending on the marginal tax rates of different beneficiaries, intestacy could potentially lead to an overall imbalance in the distribution of an estate due to higher rates of tax payable by some beneficiaries.

Planning ahead can avoid this result. When preparing a will, the will maker and their advisers can assess opportunities to manage the tax implications for beneficiaries.

Administering a deceased estate

As executor of a deceased estate, you need to understand your tax obligations, including:

• notifying us that you’ve been appointed as executor
• lodging a final return, and any outstanding prior-year returns, for the deceased person
• lodging any trust tax returns for the deceased estate
• providing beneficiaries with the information they need to include distributions in their own returns and, in certain cases, paying tax on their behalf
• paying tax on the income of the deceased estate.

Testamentary trusts

A testamentary trust is a trust established under a valid will, but it’s not the same trust as the deceased estate. A testamentary trust functions in a similar way to a discretionary family trust, with certain provisions of the will operating like a trust deed.

Like any trust, a trustee of a well-governed testamentary trust will:

• properly understand the tax profile of potential beneficiaries in the light of intended tax outcomes
• lodge a tax return for every financial year that it is in existence
• maintain proper trust account records (such as trustee resolutions, detailed financial statements and reconciliations), especially where a trustee is streaming capital gains or franked dividends
• fully document capital gains tax events, cost bases, and rollovers and other concessions claimed.

Depending on who is appointed as the trustee and appointor of the testamentary trust, there may need to be a high level of co-operation between family members to ensure that necessary tax, financial and other information is shared for the trust to operate effectively.

A well governed testamentary trust will ensure that tax outcomes are achieved and, more importantly, complex family or legal disputes can be prevented.

Capital gains tax

Special capital gains tax (CGT) rules apply to the transfer of any CGT assets from a deceased estate. You should seek specialist advice in relation to the CGT implications of passing on or disposing of the assets of a deceased estate.

Keep complete records of CGT assets. These will be needed by the executor and any beneficiary who receives a CGT asset from the estate.

Superannuation and death benefits

Ensure you understand the tax issues around estate planning and superannuation.

For example, the tax impact of distributions made under a binding death nomination is usually one of the major considerations in estate planning.

Assets held by a person in their superannuation fund are not automatically included in their estate. In the absence of a binding death benefit nomination, the trustee has the discretion to pay the benefits of the deceased to any of their superannuation dependents instead of the estate (rather than according to the will, which only deals with the estate assets), and of deferring tax consequences. Where a nomination is in place, the benefits will be paid to the nominated beneficiaries.

It’s good practice to regularly review the need for any nominations to ensure your superannuation benefits will be passed on to your nominated beneficiaries, and that the nominations are valid and effective. Seek advice on the tax implications.

Example: Reviewing your strategy as circumstances change

As part of your estate planning strategy, you make a binding death nomination to provide for your under-age children who would receive the benefit tax free. You get advice to ensure that the nomination is valid and effective.

You provide for your older children, who would be taxed on receipt of superannuation death benefits, in your will.

After some years, when all of your children are older, you review your strategy and make a new nomination that better suits your family’s tax situation.

Because your personal circumstances change from time to time, it’s important that you regularly review the estate planning and income tax consequences when it comes to the distribution of your superannuation assets to your beneficiaries. Areas that warrant attention include:

• the distinction between a ‘superannuation dependent’ and a ‘tax dependent’
• interaction with testamentary trusts
• effecting the reversion of a pension to spouse
• realising fund assets for payment to beneficiaries

Feel free to contact us if you have any questions.

Source: ato.gov.au
Reproduced with the permission of the Australian Tax Office. This article was originally published on https://www.ato.gov.au/newsroom/smallbusiness/ . Important: This provides general information and hasn’t taken your circumstances into account.  It’s important to consider your particular circumstances before deciding what’s right for you. Although the information is from sources considered reliable, we do not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, we do not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person. 
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Private vs government-funded elderly care: what’s best for your loved one?

Older Australians can access both government-funded and private aged care services, each with different costs, eligibility rules and flexibility. Understanding the differences between these options can help you or your loved ones make informed choices about the right support at home or in care.

Elderly care is currently one of the most invested programmes by the Australian government. Over 1.3 million Australians are estimated to be currently receiving aged care services with a significant increase over the years. Given this growing population of elders, there is a focus on providing them with the right and deserved care. 

The government through various programmes like the Commonwealth Home Support Programme (CHSP), Home Care Packages, and the soon-to-be-launched Support at Home program have been committed to providing quality elderly care services to all citizens who are 65 and above (50 and above for Aboriginals). However, there is always a limit to every government-funded programme like eligibility and the long list of applicants. 

But you or your loved ones don’t necessarily have to wait for the government-funded programme. You can go for private aged care services. With private aged care services, you don’t need to meet certain requirements as outlined by the government. We will try to explain everything you need to know about choosing between the two elderly care options so you can make informed choices.

Understanding the two elderly care options 

Every Australian aged 65 and above is entitled to aged care services. This service can be government-funded or private. Both care types are good and offer a wide range of services. But in case you are divided about which to choose for a better support with respect to your needs, we will help you. First, you have to understand how both care types work.

Government-funded elderly care

Government-funded aged care referees to services that the government offers to older adults to help them live better, especially at home. These are provided under different programs such as Home Care Packages (HCP), Commonwealth Home Support Programme (CHSP), and the Support at Home Program which will be launched soon.

The government offers support and funding to participants of these programmes. With the provided support, elders can live comfortably and independently at home. The funding helps you to take care of your day-to-day needs and other financial needs you might have.

To access these programmes, you are required to meet certain eligibility requirements and pass an assessment by My Aged Care, the official providers of government-funded aged care services in Australia. The eligibility requirements include:

• You must be 65 years and above or at least 50 for Aboriginal and Torres Strait Islander people
• Require assistance at home
• Have physical or cognitive impairments 
• Homeless or at risk of becoming homeless

If you’re 65 and above or you have a loved one within the age bracket, you should check to see if you’re eligible for government-funded aged care services.

Government-funded aged care programmes offer a wide range of services, each tailored to the receiver’s basic needs and satisfaction. Depending on your needs, the services provided include:

Help at home

Here, your needs will be taken care of by trained caregivers in your home. You have nothing to worry about if you find it difficult to go through your day because you can’t perform tasks such as:

• Cooking
• Cleaning
• Laundry
• Bathing
• Moving around
• Using the bathroom

All these and more will be taken care of by caregivers who are trained to provide you with personalised services to meet your needs. Health professionals are also included in case you have health issues that may require a routine check-up and monitoring.

Short term care

If you need help after being discharged from the hospital or just had surgery, short-term care is your best choice. You will be provided adequate support to help you get the much-needed rest for quick recovery. You will receive help with: 

• Meal preparation
• Home arrangement
• Mobility
• Bathroom assistance
• Medication monitoring
• Monitoring for fall risks
• Taking a walk when necessary
• Physiotherapy is applicable, etc.

Aged care homes 

For those who can’t live independently, you have the option of moving into a retirement home. You will receive adequate care and support at a subsidised rate as set by the government.

Private elderly care services

Private elderly care services are very much like the government-funded ones. The only difference is in the funding. While the government provides funding and subsidies in the government-funded elderly care, individuals have to pay out of their pockets for private aged care services. Private aged care is provided by individuals or corporate agencies for a price, according to your needs.

In private elderly care, there are no eligibility criteria or assessments. You can hire a professional caregiver to help you in any way you deem fit. In light of this, private care is your go-to option if you happen not to be eligible for government-funded aged care services even though you need the help.

Services under private care include

• Private home care services for those who wish to remain at home while maintaining independence and dignity 
• Retirement community services if you wish to be a part of one and be taken care of by trained caregivers 
• Private nursing home services for those who wish to go into a nursing home.

Basically, private aged care provides the same services as the government-funded one. The only difference is that you have to pay for the services you receive. So if you wish to switch from a government-funded care package to a private one or add it to your government-funded care package, rest assured that you will receive as much care as you’ve been receiving all along.

Differences between private and government-funded elderly care services 

Different people have different opinions about which elderly care service is better. To answer the question, certain factors will have to be examined and only after then can you choose which you believe is better, according to your needs. To start off, let’s talk about the cost as it’s usually the crux of the matter for many people. 

Cost comparison and affordability

When it comes to affordability, government-funded aged care services take the lead. Under government-funded aged care services, you receive monthly funding which can be used for a number of needs like:

• Personal care 
• Meal preparation
• Laundry and house cleaning 
• Health care needs 
• Home modifications
• Transport support
• Assistance with social life
• Assistive technology
• Respite care 

All these services and more will be provided through the funding. The funding doesn’t exactly cover everything but you get to pay less through subsidies and set contribution caps. This way, you receive all the services you need in exchange for a small amount of contribution. Unless you require extra services not covered by the funding, you are good to go with handling the cost.

On the other hand, private aged care services come at a relatively high cost. You have to undertake payment for all the services you receive. Service charge may be calculated hourly or daily, depending on your agreement with the provider or private caregiver. Without government regulation, different providers offer their services at a wide range of prices.

Realistically, government-funded aged care is the way to go if you are not financially buoyant. Without enough pension funds or support from well-to-do family members, you will find it difficult to pay for private aged care services. 

Quality of care and service delivery

Quality of care can be seen from different perspectives. When it comes to deciding which aged care services provide better quality care, we can analyse it from three perspectives: training, availability and flexibility.

• Training

When it comes to training, government-funded elderly care can be said to be ahead. This is because government-approved providers ensure adequate screening and training before hiring a support worker. In addition, workers are bound to discharge their duties with diligence as misconduct can lead to punishment.

This is not to say that private aged care providers do not screen or train their workers but without government supervision, one cannot be sure of the hiring standard in place. Private support workers may or may not have the needed experience to perform their duties diligently.

• Availability

Due to the large number of participants in the government-funded programmes, the private aged care providers are relatively more available. Providing you with the right care when you need it is important, hence a good reason to consider private aged care services.

• Flexibility 

Private aged care services offer more flexibility than the government-funded ones. While the government is trying hard to ensure that services are tailored to every participant’s needs, there are still obstacles that must be overcome. Private care services are available at your disposal as long as you can pay, unlike the government-funded ones which limit the services provided to only the basic needs of the participant.

Personalisation and control

Personalisation is an important aspect of elderly care. Due to individual differences and differences in needs, no two individuals have exactly the same needs, hence a need to tailor services provided accordingly. In this aspect, the private aged care providers tend to offer better personalisation than their government-funded counterparts. 

In private aged care, the care receiver as well as their family can decide the kind of services they want and how they want them. Whereas in the government-funded care, services provided are mostly according to assessment which may or may not cover all the major needs of the participants.

However, efforts have been in motion to ensure a more flexible service option for government-funded aged care services. With the rolling out of the Support at Home program by November 1, care receivers will have more control over the kind of services they receive and how effectively their needs can be taken care of. This is a much-needed improvement which will give the government-funded elderly care programme a more efficient structure.

Combining both for better outcomes

Man’s needs are insatiable. According to Petyr Baelish, a character in the popular TV show, Game of Thrones, “It doesn’t matter what we want, once we get it, we want something else.” As a care receiver, your support needs evolve over time and somehow, the things you needed the most in the past may become the least of your needs as time goes by.

With these evolving needs comes the extra support and care you would require. As a government-funded elderly care receiver, these services may go beyond the scope of your support package. In such a situation, you might consider adding private care services to augment the situation.

This hybrid elderly care service offers more benefits than the individual services alone. You get to enjoy more flexibility and support of any kind without limits. A case study will help you understand this better.

Mr Smith is a participant in the government-funded elderly care programme. However, he has cancer. But he won’t stay in the hospital or nursing home, rather he has chosen to be at home. The government-provided elder care services manage his day-to-day requirements, ensuring his comfort at home.

However, he needs more than just that. He needs someone to monitor his condition and take emergency measures to keep him stable. This would require having a health professional around. So he hires a private nurse who comes in to ensure he’s adhering to his medication and taking his vitals to ascertain any development.

Mr Smith pays extra for the private nursing care but it’s worth it. His family and loved ones will rest assured that he’s in safe hands. That is the beauty of a synergy between private and government-funded elderly care services.

How to decide what’s best for your loved one

Knowing the pros and cons of both private and government-funded elderly care services may not be enough. Yes, you know what each service type offers but how do you know it’s the right one for your loved one? To solve this puzzle, here are some important questions to ask yourself:

• How urgent is your loved one’s need?

If your loved one needs urgent assistance, you should consider private care. The reason is that the application process and long wait list associated with government-funded elderly care may endanger your loved one’s life. When it comes to quick service delivery, go for private care as they are always ready to offer their services without ado. 

On the other hand, if your or your loved one’s needs are not immediate, then wait for government-funded aged care services. You can start early by getting all the information you need about eligibility criteria, support options and related fees from My Aged Care. Equipped with the right information, you can fast-track your enrollment into the programme. 

For example, you can start now to learn everything you need to know about the soon-to-be launched Support at Home program to be a part of the first recipients of the numerous benefits of the programme.

• What is your loved one’s current health status?

If your loved one has health issues in addition to being old, you may consider getting them private aged care. Private care workers are more readily available to assist your loved ones with health-related support of any kind. However, if you find out that your loved one’s needs are within the provisions of the government-funded elderly care services, then you can go with it. 

For support involving help with cognitive and/or mobility needs as well as chronic health conditions, you should probably get private aged care services. Here you can hire the right professional (s) to handle your loved one’s case, ensuring they are alright at all times.

• What’s your financial Situation?

As explained earlier, private care is expensive compared to government-funded elderly care services. There are no subsidies to help reduce costs so you have to pay in full for all your services. Also remember that as your needs keep evolving, so does the cost of providing for them increase. 

Getting government-funded elderly care should be fundamental in this case. So you start off with your immediate needs which the government-funded services can take care of, then you could go for a hybrid support when these needs go beyond your support plan provisions.

• What’s your availability?

You may want to still be involved in the care of your loved one such that you go for respite care where a caregiver comes in from time to time to take care of your loved one while you’re at work, on holiday, or just getting some rest. In this case, government-funded care is okay. Not much needs to be done. The caregiver can come in from time to time to check on your loved one while you stay with them and make sure they are safe and comfortable. 

If you still can’t decide which support type you should go for, consider speaking to a support provider. They will provide you with a clearer understanding of the available support options for both and how effective they can be in providing for your needs.  

Conclusion 

Private and government-funded elderly care services share many similarities in services provided but differ in how these services are delivered and the costs of accessing them. While private aged care services may be expensive due to a lack of government funding, they offer a better value for your money. Government-funded elderly care services on the other hand come at a subsidised rate, allowing you to save money for other needs. Understanding that each of the two care options has its own pros and cons and that your decision to choose either of them should depend on your needs would go a long way in helping you make the right choice

Source: This article was originally published on https://www.agedcareguide.com.au/talking-aged-care/private-vs-government-funded-elderly-care-whats-best-for-your-loved-one. Reproduced with permission of Care & Co Media.
Important: This provides general information and hasn’t taken your circumstances into account.  It’s important to consider your particular circumstances before deciding what’s right for you. Although the information is from sources considered reliable, we do not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, we do not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person. 
Any information provided by the author detailed above is separate and external to our business. Our business does not take any responsibility for any action or any service provided by the author. Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.

As Trump abandons the rulebook on trade, does free trade have a future elsewhere?

The global trading system that promoted free trade and underpinned global prosperity for 80 years now stands at a crossroads.

Recent trade policy developments have introduced unprecedented levels of uncertainty – not least, the upheaval caused by United States President Donald Trump’s sweeping tariff regime.

This is presenting some fundamental changes to the way nations interact economically and politically.

The free trade ideal

Free trade envisions movement of goods and services across borders with minimal restrictions. That’s in contrast to protectionist policies such as tariffs or import quotas.

However, free trade has never existed in pure form. The rules-based global trading system emerged from the ashes of the second world war. It was designed to progressively reduce trade barriers while letting countries maintain national sovereignty.

This system began with the 1947 General Agreement on Tariffs and Trade, which was signed by 23 countries in Geneva, Switzerland.

Through successive rounds of negotiation, this treaty achieved substantial reductions in tariffs on merchandise goods. It ultimately laid the groundwork for the establishment of the World Trade Organization in 1995.

‘Plumbing of the trading system’

The World Trade Organization introduced binding mechanisms to settle trade disputes between countries. It also expanded coverage of rules-based trade to services, intellectual property and investment measures.

Colloquially known as “the plumbing of the trading system”, this framework enabled global trade to expand dramatically.

Merchandise exports grew from US$10.2 trillion (A$15.6 trillion) in 2005 to more than US$25 trillion (A$38.3 trillion) in 2022.

Yet despite decades of liberalisation, truly free trade remains elusive. Protectionism has persisted, not only through traditional tariffs but also non-tariff measures such as technical standards. Increasingly, national security restrictions have also played a role.

Trump’s new trade doctrine

Economist Richard Baldwin has argued the current trade disruption stems from the Trump administration’s “grievance doctrine”.

This doctrine doesn’t view trade as an exchange between countries with mutual benefits. Rather, it sees it as as a zero-sum competition, what Trump describes as other nations “ripping off” the United States.

Trade deficits – where the total value of a country’s imports exceeds the value of its exports – aren’t regarded as economic outcomes of the trade system. Instead, they’re seen as theft.

Likewise, the doctrine sees international agreements as instruments of disadvantage rather than mutual benefit.

The US retreats from leadership

Trump has cast himself as a figure resetting a system he says is rigged against the US.

Once, the US provided defence, economic and political security, stable currency arrangements, and predictable market access. Now, it increasingly acts as an economic bully seeking absolute advantage.

This shift – from “global insurer to extractor of profit” – has created uncertainty that extends far beyond its relationships with individual countries.

Trump’s policies have explicitly challenged core principles of the World Trade Organization.

Examples include his ignoring the principle of “most-favoured nation”, where countries can’t make different rules for different trading partners, and “tariff bindings” – which limit global tariff rates.

Some trade policy analysts have even suggested the US might withdraw from the World Trade Organization. Doing so would complete its formal rejection of the global trading rules-based order.

China’s challenge and the US response

China’s emergence as the world’s manufacturing superpower has fundamentally altered global trade dynamics. China is on track to produce 45% of global industrial output by 2030.

China’s manufacturing surpluses are approaching US$1 trillion annually (A$1.5 trillion), aided by big subsidies and market protections.

For the Trump administration, this represents a fundamental clash between US market-capitalism and China’s state-capitalism.

How ‘middle powers’ are responding

Many countries maintain significant relationships with both China and the US. This creates pressure to choose sides in an increasingly polarised environment.

Australia exemplifies these tensions. It maintains defence and security ties with the US, notably through the AUKUS agreement. But Australia has also built significant economic relationships with China, despite recent disputes. China remains Australia’s largest two-way trading partner.

This fragmentation, however, creates opportunities for cooperation between “middle powers”. European and Asian countries are increasingly exploring partnerships, bypassing traditional US-led frameworks.

However, these alternatives cannot fully replicate the scale and advantages of the US-led system.

Alternatives won’t fix the system

At a summit this week, China, Russia, India and other non-Western members of the Shanghai Cooperation Organization voiced their support for the multilateral trading system. A joint statement reaffirmed World Trade Organization principles while criticising unilateral trade measures.

This represents an attempt to claim global leadership while the US pursues its own policies with individual countries.

The larger “BRICS+” bloc is a grouping of countries that includes Brazil, Russia, India, China, South Africa and Indonesia. This group has frequently voiced its opposition to Western-dominated institutions and called for alternative governance structures.

However, BRICS+ lacks the institutional depth to function as a genuine alternative to the World Trade Organization-centred trading system. It lacks enforceable trade rules, systematic monitoring mechanisms, or conflict resolution procedures.

Where is the trading system headed?

The global trading system has been instrumental in lifting more than a billion people out of extreme poverty since 1990. But the old system of US-led multilateralism has ended. What replaces it remains unclear.

One possible outcome is that we see a gradual weakening of global institutions like the World Trade Organization, while regional arrangements become more important. This would preserve elements of rules-based trade while accommodating competition between great powers.

“Coalitions of like-minded nations” could set high policy standards in specific areas, while remaining open to other countries willing to meet those standards.

These coalitions could focus on freer trade, regulatory harmonisation, or security restrictions depending on their interests. That could help maintain the plumbing in a global trade system.

Source: The Conversation