Living with Trump’s America
Trump’s tariffs
It’s all bull
Australia is to be subject to Trump’s baseline 10 percent tariff – what one may call “least disfavoured nation” status to reconfigure conventional trade terminology. Large trading countries are subject to higher tariffs: China 34 percent, India 26 percent, Japan 24 percent and the European Union 20 percent.
That’s only part of the story. In her post Donald Trump’s “Reciprocal Tariffs” chart explained the ABC’s Sohani Goonetillake presents a more complete set of data, particularly relating to Asian countries. Cambodia, Vietnam and Sri Lanka are subject to tariffs above 40 percent. Gareth Hutchens has a post explaining how Trump’s advisers came up with those figures: How were Trump’s new tariffs calculated? It will shock you.
Dutton must surely be disappointed that this “weak” Labor government has had a relatively good outcome.
Trump has singled out our beef industry as a concern to the US, because since 2003 we have had biosecurity bans on importing fresh US beef. The USA takes about a quarter of our beef exports, making it the industry’s largest single export market. So far we don’t know what Trump has in mind, but it’s a fair bet that the beef industry lobby will not want to see any relaxation of our biosecurity restrictions in exchange for US-specific trade concessions.
Even before Trump announced his “liberation day” tariffs, Albanese prepared the government to respond. Australia will challenge America’s move at the WTO, and will use a dispute resolution mechanism under the US-Australia free trade agreement. Albanese has stated that Australia is not prepared to negotiate away Australia’s interests.
Peter Dutton has pursued his usual line, asserting that Albanese lacks the strength to stand up for Australia’s interests. By contrast he says he is ready to fight Trump – an easy assertion. It’s the sort of comment that could undermine Australia’s negotiating strength, but Trump made it clear that there was no room for pre-emptive negotiation.
Many have written about Trump’s tariffs. I have picked out two Australian economists who explain the politics and economics of US, both of whom put their views before Trump’s “liberation day”.
Both explain the economics of tariffs. They’re bad public policy for all the reasons taught in high-school economics classes. They bear a huge opportunity cost, that cost being the forgone benefits of trade between countries with different economic specializations. They cause domestic prices to rise, and they have a swagful of unforeseen consequences.
Both economists comment on the effects on Australia of Trump’s tariffs. In terms of our worldwide trade the direct effects are minor. The bigger and less predictable effects are on the world trading and financial system, to which Australia will have to adapt.
Saul Eslake – how tariffs don’t work
The first is Saul Eslake, who has a 9-minute discussion with the ABC’s Hamish Macdonald: The impact of Trump’s “trade war”. He is sure that America is heading into a recession resulting from Trump’s economic policies, particularly his tariff policies.
He explains how the cost of tariffs on basic commodities like steel flow through to finished products. Even if tariffs help create jobs in the steel industry (which is doubtful), there are resulting higher costs and possibly loss of jobs in downstream industries using steel. Some of these industries such as automobile manufacture, will enjoy some benefit from tariffs that lock out their foreign competitors, but other industries that have no foreign competitors to exclude, such as construction, enjoy no such offsetting benefit. Because of the effects on prices, the net result could be lower employment.
This is well-established knowledge in Australia – the Productivity Commission and its predecessors have been telling the story for 70 years – but it is not so ingrained in the US, and, in Eslake’s view, Trump and the people around him just don’t get it.
Justin Wolfers – Trump just doesn’t understand trade
The other explanation is on the ABC’s Global Roaming, whose guest last weekend was Justin Wolfers of the University of Michigan: Why is Trump crashing the US economy?. As an Australian Wolfers is able to look at America as we see it, and as they see themselves.
He stresses that Trump‘s moves are almost entirely unpredictable: we should stop trying to guess the path of his public policies. But he is certain that Trump’s view of trade is of a fixed pie to be divided – a win-lose competition. He has no concept of the mutual gains of specialization and trade. (At stages in the session Wolfers is emotionally passionate about the benefits of trade.) Wolfers also believes that Trump takes as a historical model the Gilded Age of the late nineteenth century, a period of strong economic growth accompanied by corrupt government.
Wolfers quashes ideas that Trump’s tariffs and hostility to former allies will set off a world trade war. This is an American phenomenon, and the harm it does will mainly be to itself.
He also has observations on the attitudes of American businesspeople, revealed by the US stock market as an indicator of business sentiment and expectations. On Trump’s election businesspeople were exuberant, and pushed up share prices, but disillusionment has set in and share prices are now below where they were when Trump was elected. (Why do so many businesspeople, who think they are so clever, throw their unthinking support behind right-wing populists, in the US and here?)
The economic scene Wolfers paints is one of crony capitalism: Trump is managing to replicate that aspect of the Gilded Age. He identifies the tensions in Trump’s administration that will eventually bring it down: it’s not easy to hold together a coalition between billionaires and the underpaid working class.
He also has some chilling comments about the way US politics has become so ugly since Trump’s election, to the extent that there is blatant intimidation aimed at dissidents, such as Australian economists.
Perhaps Trump isn’t an aberration
“It would be comforting to think Donald Trump is an outlier, that this, too, will pass. Alas, while Trump is abhorrent, he is not an aberration. His administration is the fulfilment of conservative America’s drift further and further right into populist nationalism and isolationism. It is not coming back.”
So starts Michael Pascoe’s Saturday Paper article Trump is not an aberration. He draws on the World Values Survey to demonstrate that America’s political elites, particularly the Republicans, are more aligned with their counterparts in authoritarian regimes such as Turkey and Russia, rather than with the political classes of the “west”, including Europe and Australia.
His article goes no further into analysing the American political psyche. Rather, it is about the way successive Australian governments, and the Australian political establishment, have let our foreign and security policies be shaped by an unquestioned assumption that America is our friend, because we assume an alignment of political values.
We should not hang around waiting for the re-emergence of liberal values in America:
The American left is irrelevant for the foreseeable future, however. Wishing for an internationally engaged, liberal democratic US government is not a rational basis for Australia’s foreign and defence policies.
There is a backlash against Trump. American liberals are celebrating the election of a Democrat-supported judge to the Wisconsin Supreme Court, an election that saw a huge swing to the Democrats in spite of Elon Musk having contributed $US20 million to the incumbent Republican’s campaign. Robert Reich reports on six small morsels of hope – a swing in a Florida by-election, a crowd of 34 000 in Denver turning out to hear Bernie Sanders and Alexandria Ocasio-Cortez, and other signs of a backlash.
But as Democrat Congressman Seth Moulton said on Radio National’s Saturday Extra last week, the Democrats are in disarray. They have gone to pieces after failing to win an election when they were running against a convicted felon: Renewing the US Democratic Party in face of new Trump era.
The first 4 minutes of the 14-minute interview are about the serious security breach when members of the Trump administration were discussing plans to attack Houthi rebels in Yemen: use of an unsecured network was a conscious political decision, not an accident, he explains.
The other 10 minutes are about the Democrats’ problems in connecting, or re-connecting, with America’s working class: it has failed where Trump has succeeded. He sees the party as having been too concerned with what he calls “left” issues and suggests the party should swing back towards the centre.
It’s a little confusing for an Australian audience, because he is classifying issues such as “defund the police” and “woke” concerns as “left”. In fact he seems to be urging the party to move more to traditional social-democrat policies, as our Labor Party has (cautiously) done, rather than to move towards the Republicans’ hard right territory.
He also exposes a weakness in US political conventions in not having an identified spokesperson (“leader of the opposition” in our case), who can speak with one voice holding the government to account.