The overdue lessons and wake-up calls from Trump’s tariffs

By Phil O’Reilly

First published on the The Post.

There has been a lot of talk about President Trump’s “Liberation Day” tariff polices.

Commentators are correct to point out that Trump’s tariffs are unprecedented and certain to hugely damage US and global growth and cohesion.

But if you were to read some commentary you might be led to believe that all was perfect and open in the world of trade, until Trump came along.

In fact, protectionist policies as monitored by the OECD have been increasing significantly over the last few years. Trump’s actions are an extraordinary and dangerous escalation, but this is not the first US administration to increase protectionist measures.

Indeed, President Biden also implemented some highly protectionist policies (including tariffs on China) that had the impact of harming American competitiveness. And it was the Obama Administration that first blocked the reappointment of judges to the appellate body of the World Trade Organisation (WTO).

The EU is often criticised for non-tariff trade barriers — sometimes masquerading as green policies — and it has its own industry policies that favour particular sectors.

China massively subsidises favoured industries, including electric car manufacturers.

Some countries have local content requirements or policies that unfairly favour their state-owned enterprises.

We see economic coercion, where trade barriers are deployed to achieve outcomes that probably have nothing to do with trade. China’s actions over the last few years against some Australian imports are one example, and Trump’s tariffs against Canada and Mexico more recently, ostensibly to do with issues like drugs and illegal migration, are also relevant.

The US and other nations have been insistent on favouring certain sectors using the excuse that they are vital for national security reasons.

Businesses are often faced with a thicket of burdensome and contradictory regulations in many countries that act as a practical impediment to trade, even though they are often touted as trade enhancing. Carbon reporting regulations are just one example. Businesses wanting to do the right thing are faced with rules that make that very expensive and complicated.

The global trading system was already struggling under the burden of all this. But trade and globalisation in one form or another will endure, despite all. The benefits of it are so compelling in building shared prosperity.

Global business understands this. It understands the need to think about not just short-term shocks but also of longer terms risks and opportunities.

It is instructive to note that on the day President Trump announced his tariffs against Mexico and Canada, every single major US business organisation made public statements opposing the tariffs and proposing alternatives. Those statements were constructive, sober and based on evidence.

At the same time, global business organisations have been pointing out protectionist tendencies and the damage they can do to prosperity over many years now. They continue to do so.

Over the last few days, international business organisations have been making statements about the need to free up the global trading system, based on a healthy, properly functioning WTO.

That ongoing desire for businesses all around the world to work with partners and countries that share their values represents a real opportunity for New Zealand too. We still have friends everywhere. We have very strong relationships with Southeast Asia which is likely to remain the highest growth region in the world for years to come. Latin America and many emerging economies of Africa see us as trusted partners.

Add to that our long and constructive relationship with Europe and the UK, and an emerging and very positive dialogue with India.

And our long-term relationships with Japan and Korea. And many more besides. They all want friends they can work with and that, more than ever, includes us. And we already have many existing FTAs that allow us market access, with more being negotiated now.

Some good may come of this. For example, maybe Europe will finally conclude that it must be more productive and competitive than it has been. The EU has already made some statements about the importance of a competitiveness agenda and European business organisations are waiting for those good statements to be turned into concrete actions.

Maybe reform of the WTO will now occur, with or without the US.

And above all, maybe New Zealanders will increasingly understand the need for reform of our own economy to get us growing strongly. We need to be much more productive than we are today. The world is becoming an increasingly difficult and dangerous place.

Our best way of succeeding in it is from a position of economic strength, resilience and shared prosperity, with a broad network of trusted and mutually reinforcing relationships with the new world as well as the old.