JACKSON HEWETT: America’s ‘destiny’ is a global disaster, Trump’s ‘Liberation Day’ tariff slap upends economy

This tariff plan will completely upend the global economy, throwing the trade system into chaos.

The last time tariffs of this magnitude were placed on foreign nations by America was under the Smoot-Hawley Act of 1930, which imposed rates as high as 41 per cent, sparking a trade war that caused the Great Depression.

US President Donald Trump’s advisers clearly have a different version of history. In his speech, Mr Trump blamed the Great Depression on the US removing tariffs in 1913 and replacing it with an income tax.

“From 1789 to 1913, we were a tariff-backed nation. United States was proportionately the wealthiest it has ever been,” President Trump said.

“Then in 1913, for reasons unknown to mankind, they established the income tax so that citizens, rather than foreign countries, would start paying the money necessary to run our government.

“Then in 1929, it all came to a very abrupt end with the Great Depression. And it would have never happened if they had stayed with the tariff policy. They tried to bring back tariffs to save our country, but it was gone. It was gone. It was too late.”

In all my years of studying or covering economics, I have never heard anyone offer that argument.

That is just one of the many dangerous ideas that is now central to the US world view.

The Trump administration thinks with this policy it can have its cake and eat it too by taxing foreign countries for exporting to America, while simultaneously expecting them to move their production into the country.

The logic behind that is false, but that won’t matter for a President, and cabinet, hellbent on restitution for others’ success at what it sees as America’s expense.

“Friend and foe, and in many cases, the friend is worse than the foe in terms of trade,” Mr Trump said.

America’s best friends, Australia and the UK come off relatively easy but are not spared.

Our beef and lamb producers can cope with a 10 per cent tariff, because American consumers need our product. And remember that all nations will be hit with this tariff, so all being equal our products will be cheaper.

The real concern is what will happen to our largest trading partners. 85 per cent of our exports go to Asia, with China alone accounting for 8 per cent of Australian GDP. One-third of our budget is based on company tax receipts primarily from selling iron ore and coal to China, Korea and Japan. If those countries slow down, and under this policy, they must, then our revenues will fall.

Our second largest export to America, pharmaceuticals, has been spared, with the US deciding not to place reciprocal tariffs on the product. That is good news for CSL, our largest biotech with a global footprint with extensive operations in Switzerland. That nation has been hit with a 31 per cent tariff.

Australia’s content production industry, which saw record expenditure from foreign titles (mostly American) of $1.22b in 2022 has also been relatively spared, with the tariff only applying to if at least 20 per cent of its value is US-originating.

But any other Australian firm that uses local intellectual property in contract manufacturing sites in places like India, Malaysia and Thailand will now have to go back to their books, to work out whether onshoring to the US is a viable concept. Even then it will take years to find a location, build a plant, hire highly skilled workers, and get regulatory approvals.

The alternative is to find a contract manufacturer in the US who can perform the work. But imagine how many other companies will be doing the same thing, and you can start to see the scale with which the US has created the world’s largest traffic jam on the way to the ‘American Dream’.

The biggest loser in this plan is the American citizen. They will now receive taxes on every single one of the $US3.3 trillion worth of goods they buy from overseas every year. And another $US814 billion in services.

Some of those imposts will be 10 per cent or under, most will be much higher.

There is no way that does not end up severely increasing inflation, and potentially cratering the US economy.

The race is now on for every other nation to get together to ensure a global trade war does not follow. The world has been so hooked on selling to the US consumer that the pain of an economic slowdown will affect every country, the poorest the most. It will result in job losses, whether from reshoring or just the massive pullback in US consumer spending.

Brian, a US auto worker from Detroit, who was called on stage during Mr Trump’s speech, clearly articulated that pain that every government will now be looking out for.”

“I have watched plant after plant after plant in Detroit and in the metro Detroit area close. There are now plants sitting idle.

“We support Donald Trump’s policies on tariffs 100 per cent. So Mr. President, we can’t thank you enough. And in six months or a year, we’re going to begin to see benefits. I can’t wait to see what’s happening three or four years down the road. Thank you, Mr. President.”

There will be “Brians” all around the world, and particularly in the hardest-hit nations like China, Vietnam, India, Indonesia, Mexico and Thailand who will be increasingly angry about losing their jobs too.

Frightened governments will be desperate to keep them employed, and likely left with little option but to dump their products in any country that will take them.

The ripple effect of that is horrifying, causing a global race to the bottom in industries once viewed as economically secure.

Then the real contagion might begin, with each nation forced to put up their own tariff walls to stop the influx of cheap goods. Don’t forget that US manufacturers will also be looking for new markets as they get hit by reciprocal tariffs, or by consumer anger, similar to Canadians boycotting US liquor.

Dr Pru Gordon, a former senior adviser to the Australian Minister for Trade, and who worked on trade negotiations with both China and the US before founding the Australian Centre for International Trade & Investment said there was a “very low chance of us not entering the trade war.”

“Look what’s happening in Canada. It is incredibly difficult for governments to not be seen to be standing up to a bully, and the whole reason the World Trade Organisation was created was to enable governments to counter those nationalist feelings by enabling them to negotiate reciprocal trade deals to lower their own barriers,” Dr Gordon said.

“That rationale has just been blown to pieces by Donald Trump.”

And the WTO has probably been blown to pieces as well. With its architect and its largest defender, meaning the “rules based system is gone.”

History must not repeat the playbook of the Smoot-Hawley tariffs of 1930 that sparked the global trade war central to the Great Depression. But for that to happen the EU, China and Japan must work together to try to shore up a global trading order that has not just been abandoned by the US, but trashed. Can they do that? Your guess is as good as mine.

Donald Trump believes 2nd of April will be “one of the most important days, in my opinion, in American history… the day America’s destiny was reclaimed.”

It will be remembered as one of the worst.