Trump thumped: The US President is winding up to hit Australia

DONALD Trump’s decision to kill off the TPP was nothing compared to what comes next. Australia will be hit hard.

US President Donald Trump signed a series of executive orders on Monday, including withdrawing the US from the Trans-Pacific Partnership trade deal. Picture: AFP Photo / Saul Loeb

DONALD Trump is waging a war we need to stop very soon.

It’s a war on trade. His first victim was the Trans Pacific Partnership, which he killed on the first day in office. Great. It was a dog’s breakfast — as much a tangle of rules and limitations as anything worthwhile.

But Mr Trump is not finished. He wants to go a lot further in his attack on trade and he has a detailed plan. Australia is just collateral damage to him. He doesn’t give a damn if we get hurt.

TRADE IS GOOD*

Trade is a massive part of Australia’s economy. If you know anyone who works in tourism or mining, tertiary education or agriculture, you probably know someone who owes their job to trade.

Australia needs trade. We’re just not a huge country, so we need to buy a lot of things in and sell things out. It is worth remembering imports are important to Australia too.

Buying Australian made is fine when we make a good version of the thing in question, but who’d buy an Australian-made iPhone, for example? Imports help us get stuff we never could have obtained otherwise at better prices than if we made it ourselves.

As this next chart shows, we often import more than we export.

Trade: It goes both ways.

The evidence is pretty clear that trade makes you better off. Certainly when countries aren’t allowed to trade, they rapidly fall apart.

North Korea is the shining example of the folly of self-sufficiency, with Cuba and Venezuela as other salient examples. China was totally impoverished til the 1980s when it gave up on Chairman Mao’s crazy ideas and started to become the trading superpower it is today.

Whitlam first cut our tariffs back in the 1970s and started Australia on the path to being one of the most trade-friendly countries in the world. This coincided with Australia shooting up the rankings in terms of wealth.

TRUMP SLUMP

Trump’s antitrade vendetta has several parts:

1. He’s promised a big border tax for any American firm that tries to move part of their operations overseas.

2. He’s also promised to take America out of the North American Free Trade Agreement, which would be a massive shock.

3. Threatening a trade war with China.

All of these are big, but the last one is the biggest, because it would probably blow up global trade.

President Trump proudly signed an executive order withdrawing the US from the TPP on his first working day in office. Picture: AFP Photo / Saul Loeb

The whole picture matters, for example, we sell a lot of stuff to China that they make into something they sell to Vietnam, where it is transformed for export again. We can’t expect a trade war to go on and just sit and watch. We’re part of it, the moment it starts.

The organisation that monitors international trade is already nervous. The WTO says the number of new trade restrictive measures being introduced is “worryingly high” and could hurt job creation.

Think of global trade like a stream that powers the mill that is the Australian economy. Global trade keeps our wheels turning. So when Trump threatens to reduce the stream of global trade, we are at risk of grinding to a halt. Our economy has already got problems and nobody wants to see Aussie companies lay off workers.

*YEAH, OKAY. TRADE CAN BE BAD

Eagle eyed readers will have noticed the asterisk earlier. This is where we admit things are a bit more complex. Trade is good, on average. But that doesn’t mean it helps all the people, all the time.

Sometimes it hurts certain regions. Certain industries. Readers in northern Adelaide know all too well what I’m talking about. Sometimes those regions and industries never recover, and the people who live and work in them have lives that are really genuinely worse than they would have been otherwise.

But with the car companies moving out of Australia, it is going to be easier to help Adelaide in a world of lots of trade, not a world of increasing isolation.

The head of the RBA said in 2016 that increasing isolation “would be costly for the US and very costly for us … Of the things that I worry about that’s probably right at the top of the list.”

The best chance we have is if Trump’s popularity keeps falling. If his popularity slides, he’s less and less likely to be able to do what he says he wants to do. Even members of Congress from Trump’s own party won’t want to co-operate with an unpopular President. They can sniff the wind and they’ve got elections in two years.

Hopefully Trump’s antitrade war stops after the first battle, and we can all breathe easy.

Jason Murphy is an economist. He publishes the blog Thomas The Thinkengine. Follow Jason on Twitter @Jasemurphy