Given the role free trade has played in lifting millions out of poverty, to see the United States take a baseball bat to the system is something of a culture shock.
Subscribe now for unlimited access.
or signup to continue reading
What's been done is brutish, seemingly not well thought out and impossible to rationalise. Publishing a list with tariffs for uninhabited Antarctic islands reeked of a rush job. Hence the hilarious memes with penguins protesting.
Australians are right to be perplexed at why we would be treated as we have been. It is refreshing to see Democrat Senator from Virginia, Mark Warner, putting some fire to US Trade Representative Jamieson Greer on that issue. Given the Democratic Party seemed to go doggo for a few years over the highest office holder in the land not looking as though he actually had all his marbles, I hadn't expected such clear strength. Gold star to him.
Two questions come to mind. Is this an intended long-term policy position? And, what should the United States do?
Even after what's happened it is hard to imagine that the US would want to revert to the old tariff system in the long term. That leaves the option that what's happening now is an extremely unattractive misuse of the system to bludgeon countries into early desired policy changes on their own tariffs and on other issues. After which we may, may, revert to a more orderly free trade situation.
That might be the thinking of a man and an administration who just aren't prepared to give a task to bureaucrats who might take years and years of conferences to get to a conclusion. They might have decided that the cost of some, albeit significant, detritus from the wrecking ball tough guy approach is worth it for the speedy response you get. We may read about plans afoot to allow US President Donald Trump a third term but his administration will not be putting all their eggs in that very uncertain and unlikely basket at this point. Right now, the mindset will be "Let's get everything done we can".
It's certainly not clear that the US administration is confident or indeed has given much thought to the geopolitical consequences of these moves. Will beleaguered countries in the Indo-Pacific decide that China might be a better friend? Or might some see an exercise of brute strength and decide to go with that? Time will tell. Plenty of commentators fear the former. The latter however is a real possibility. Sure, China is big and, in many ways, impressive. But they still have serious problems. The demographics of too many boys, not enough babies and generations of young people feeling hopeless are not great.
Trump also has real problems. If you put tariffs on stuff the US doesn't produce, like bananas, you can expect the price of bananas to go up. Seems ridiculous when you don't produce them. And American consumers will spot the stupidity. There will be price increases in the US on a vast range of products they now import. Americans will feel the pinch. Getting low- to middle-income earners to accept that as being a good idea will be a big ask. The line "Just pay up, it will all be OK in the end" might work with high-income earners but with people on struggle street there'll be no hope.
The domestic consequences of tariffs are more far-reaching than just getting people to accept short-term pain for long-term gain explanation. In the meantime, prices go up, people lose their jobs and default on their mortgages. It's real pain. And the people who feel it really feel it ... in a way that those with millions and billions do not when their bank balance goes south.
Trump says America will once again be a production powerhouse. But their economy is very much service based. And in any event, tooling up for manufacturing isn't an easy flick of the switch. Global supply chains are complicated and not as easy to play with as Lego. Nothing is happening overnight in that space.
Plenty of countries are already at, if not on their way to, the negotiating table. Trump will feel a measure of success. Plenty are taking a different approach ... retaliation. That will hurt certain US exports and the exporters and their workers won't be happy.
Those who stupidly discarded their Tesla because they didn't like Elon Musk ganging up with Trump might now have cause to rethink. (Not that people who buy a car on the basis of the political friendships of the manufacturer's key shareholder can be said to be great thinkers.) Musk has advocated an EU/US free trade agreement and stuck his boot decisively into Trump's trade adviser. It's ugly for the administration, but debate is a good thing, and Musk has real-world rather than ivory tower experience. We will all be watching that space.
So what should the Trump administration have done? Sent nice notes to countries asking them to reduce their tariffs? More nice notes to see if they could stop pilfering foreign aid and actually start behaving like governments rather than kleptocracies?
Governments and ministers aren't paid to make easy decisions. They're usually forced to choose between a range of policy options, none of which are palatable. But one has to be chosen. That's not the bitter pill. The bitter taste is these horrid choices are usually forced into the ugly policy recalibration because of the profligate spending and weakness of previous administrations.
The idiots get in power, spend like drunken sailors and leave your kids or grandchildren to pay. We can blame the politicians but let's be fair, plenty of people ask at an election "What's in it for me," rather than "What's best for Australia?". That's why John Kennedy's phrase "Ask not what your country can do for you, ask what you can do for your country" was - and remains - so potent.
One startling thing about the debate in Australia is the degree to which so many feel entitled to pass judgement on what the US ought and ought not do. Take the cutting of foreign aid for example. I'm just unaware of some galactic rule that says the US ought to shell out billions in aid to many countries who play one donor off against another and who, over decades, have done little to improve their own situation. True, the donors are more likely to be buying influence than they are worrying about the starving kids but in the end something has to give. To keep shelling out endlessly just doesn't seem sensible.
While there's plenty of justified criticism of this bull in a china shop approach, there isn't much around in the way of helpful policy advice as to how the US should pay off its horrendous debt. It just can't keep going as they have been. It's true that if something can't last it won't. That means sooner or later it will just stop. Getting its debt down is vital. The consequences of not doing so might be much worse than what is happening now. In effect, the US citizens are getting a big tax hike to pay off debt but Trump doesn't want to say he's increasing taxes. Additionally, he seems to like tariffs - a bludgeoning tool for other policy outcomes.
It might be a triumph of optimism over bare-faced reality but I'm still hoping this is a rough, brutish and ugly short-term wrecking ball designed to produce some more positive policy outcomes.
Free trade takes a battering but not a knife to the carotid artery. With a stint in intensive care and some good rehabilitation we may get back to normal. In the meantime, there'll be no plain sailing. It's going to be rough. Ditto doing nothing about the debt.
