There was much sound and fury in Australia, and among our allies, when China introduced trade sanctions on Australia in 2020; at least in part punishment for Australia calling for an inquiry into the origins of COVID-19.
Subscribe now for unlimited access.
or signup to continue reading
Those measures, including tariffs across a range of products, were intended to send a sharp political message to Australia. They were a clear attempt to force us to change policies to suit China's interests.
In the US, President Donald Trump's aggressive forays into trade policy obviously have the same purpose in mind. Those in Australia cheering Trump on might want to consider our recent experience on the receiving end.
The circumstances are not exactly the same of course, and Trump's actions at any time remain extremely unpredictable.
As an example of this, we need look no further than what happened this past week to the proposed 25 per cent tariff on imports from Mexico and Canada - which looked a sure thing for just two days before Trump suspended it.
However, it is clear Trump appears to view increased tariffs as an all-purpose instrument or weapon of foreign and security policy as well as economic policy.
This is bound to make for challenging unpredictability, if not outright chaos.
To the extent the tariffs are economic policy, they are based on snake-oil economics.
The first is the mistaken belief that manufacturing job were sent offshore and can be brought back home to the US with appropriate industry policy.
However, most of the low-skilled jobs have disappeared altogether because of automation. The days of manufacturing serving as a sink for masses of unskilled, largely male, labour are gone and no amount of protection can bring them back.
Instead, a host of well-paid new jobs have been created in a number of sectors; including education and other services and in new industries like tech.
More broadly, the decades since the tariff reductions of the 1980s and '90s have seen unusually low unemployment. In fact, both Australia and the US have recently seen 50-year lows in unemployment rates.
This is not the only misconception. Trump, for example, is obsessed with the issue of bilateral trade balances, and the idea that a trade deficit means you are losing.
However, trade is not a zero-sum game. It involves mutual gain.
Moreover, a trade deficit is often accompanied by foreign capital inflows (as is the case with Australia, for example) boosting the level of investment and growth in the local economy.
Nor should we ignore the impact on consumers. After all, it is domestic consumers, not America's trading partners, who will bear the cost of US tariffs.
Notwithstanding the about-turns on Canada and Mexico, last weekend's announcement on tariffs reveals that Trump may mean what he has been saying in the lead-up to his election victory. This has naturally led to much speculation as to what may be in store for Australia.
It is useful to think of the potential effects on us as direct and indirect.
The direct effects would come from increased tariffs imposed on Australian exports to the US. At one level, these could come about from Trump targeting Australia as he has China, Canada and Mexico.
This is the least likely risk. Trump appears to have no beef with Australia and may even be favourably disposed - although it will take considerable diplomatic eggshell-walking to keep things that way.
The other direct effects on Australia could take the form of collateral damage from a sectoral approach to increased US tariffs (such as on steel) or the universal 10 per cent impost Trump has talked about.
In 2017, the Turnbull government succeeded in talking Trump into excluding Australia from tariff hikes on steel and aluminium. But it not at all clear this precedent would hold - or even be relevant - in the case of a universal tariff impost.
Australian officials and ministers are doubtless rehearsing their arguments against such measures. We have already heard much from our side about the fact that the US has had a trade surplus with Australia since at least 1950.
Nonsensical though it is to base trade policy on bilateral balances, it is understandable that Australian negotiators would approach the issue on the ground that Trump accepts. Any port in a storm.
Whether such arguments would have the desired effect this time remains to be seen. If Trump is serious about the universality of a universal tariff, it is difficult to see him making any exceptions.
Even if we escape any direct effects, the indirect effects of a global trade war on Australia - or even a serious trade war just between the US and China - are potentially far more serious.
Australia lives in a global economy that has benefited greatly from globalisation of trade and investment.
Globalisation has been in retreat for some considerable time, but the scale of retreat now at risk of happening is an order of magnitude greater than any setback we have seen for decades.
It doesn't have to mean recession - though a trade war could join with other contractionary forces to make a recession much worse.
It may just mean slower global economic growth than would otherwise have occurred; which lacks the immediate punch of a recession but can have a greater cumulative effect in lowering living standards over time.
READ MORE:
Trump wants us to believe that all those arguments for free trade and globalisation were wrong after all, but there is scant evidence of that - and the US didn't miss out on the benefits.
He would also, presumably, say Australia was foolish to unilaterally slash tariffs in the 1980s and 1990s; but there is no evidence of that either.
To the contrary, cuts to industry protection were a key ingredient in the highly productive restructuring of our economy and massive improvement in living standards over 20 years.
It's a shame so many are so quick to walk away from policies that worked - in favour of ones that feel good but achieve little.
- Robert Carling is a senior fellow, and Simon Cowan is research director at the Centre for Independent Studies.
