The GOP is as big a threat to global free trade as the CCP
What Australian economic history teaches us about tariffs
President Donald Trump has announced 25% tariffs on imports from Canada and Mexico, 10% tariffs on imports on China and foreshadowed new tariffs on the EU. Retaliation is sure to follow, bringing on a new global trade war. Trump declared ‘The tariffs are going to make us very rich, and very strong.’
The tariffs might be seen as a response to China’s economic policies, but that hardly explains the tariffs on Canada and Mexico, with which the US notionally enjoys a free trade agreement negotiated by the previous Trump administration, not to mention a strong security partnership in the case of Canada. Trump’s tariffs are not about economic security or pushing back on China, but outright economic coercion. It is hard to overstate what a bad precedent this sets.
As Rajiv Sethi noted this week in the case of Colombia:
the humiliation of a relatively small trading partner and a shot across the bow by a much larger one—both have implications for what the future might bring. The needless humiliation will push Colombia and other potential victims into the arms of an emerging global power, and the embrace will be reciprocated. While champagne corks are popping to celebrate a small victory against a weak adversary, quiet celebrations may also be underway on the other side of the world.
Hal Brands makes much the same point in relation to Greenland and Taiwan: ‘On what principled basis can [the US] object when China does the same thing in the Western Pacific.’
As a small open economy, Australia’s biggest fear is getting caught in the cross-fire of a global trade war. Having spent much of last five years seeking ways to hedge against China’s attempted economic coercion, we are now confronted with economic coercion by the US against its close allies.
In his monumental history of US trade policy, Clashing Over Commerce, Doug Irwin showed that the US has cycled between free trade and protectionism throughout its history, including some major partisan shifts. The Republican party’s re-embrace of protectionism is just the latest iteration. But far from being a response to populist forces, this is very much a case of US elite intellectual and policy failure.