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Penguins on standby as Trump ruffles global trade feathers

By Shane Wright

The penguins of Heard and McDonald Islands are back quaking in their flippers as they await a tariff letter from Donald Trump.

After seeing what an eclectic group of nations is going to face if they sell goods to American consumers, the penguins (and seals) of the frigid outpost closer to Antarctica than Australia can be rightfully more than a little concerned about what the US president has in store for them – having been on the first list of “liberation day” tariffs in April.

Donald Trump has identified the first 14 nations to face reciprocal tariffs. The penguins of Heard and McDonald Islands have escaped his plan, for now.

Donald Trump has identified the first 14 nations to face reciprocal tariffs. The penguins of Heard and McDonald Islands have escaped his plan, for now.Credit: Bloomberg

The only common element to Trump’s initial list of 14 countries to be hit with extra tariffs of between 25 per cent and 40 per cent is each runs a trade deficit with the United States. That stretches between $US69.4 billion with Japan and $US126 million with Bosnia and Herzegovina.

The common thread – deficits – is a positive sign (among the bleakness of the economic ramifications of Trump’s actions for American consumers) for Prime Minister Anthony Albanese.

In his letters to the 14 nations, Trump made clear they were all about the “significant trade deficit” between that country and the US. In each missive, he accused the affected nation of having a “closed trading market” to American products.

Australia, despite a couple of monthly surpluses this year by enormous movements in gold caused by investors fearful of the impact of Trump’s policies on US inflation, continues to run a deficit with America.

In Trump’s unhinged view of the trading world, an American trade deficit requires retribution. A surplus means a baseline tariff of 10 per cent.

The argument that nations will escape a tariff ignores a key part of Trump’s economic plan. He needs the tariff revenue to pay for the Big Beautiful Bill that will blow a $US3.3 trillion hole in the US budget over the next decade.

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Tariffs, the inflation they will cause in the US, and the financial pain they will inflict on poor and middle-class Americans, are here to stay under the Trump agenda.

You don’t have to be a Heard Island penguin to see the trouble with this policy.

The inhabitants of Heard and McDonald islands – a tariff threat to the United States. In April, it was confirmed that no people lived on the islands, but they still attracted trade tariffs.

The inhabitants of Heard and McDonald islands – a tariff threat to the United States. In April, it was confirmed that no people lived on the islands, but they still attracted trade tariffs.

Already, global trade is starting to slow (as Americans import less because the cost of those goods have gone up). China is also shifting its exports to non-American markets.

That was before Tuesday’s announcement and Trump’s misplaced belief in what they will achieve.

Take, for instance, Cambodia. Its goods will be hit with a 36 per cent tariff sold into the US from August 1.

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The US runs a $US12.3 billion trade deficit with Cambodia. Almost a third of that is due to cheap Cambodian clothes and shoes that are produced there by companies such as Under Armour and Lululemon.

But American firms sold just $US319 million worth of goods to Cambodian consumers last year, with second-hand goods the single largest share ($US79 million).

There’s a reason for such a huge disparity. The US is one of the richest nations on the planet. The other is one of the poorest with an average income of about $US1700 a year.

As Albanese noted on Tuesday morning, tariffs are a penalty on the country that imposes them. These tariffs will not be paid by Cambodian, Serbian or Japanese shoppers.

It will be American shoppers who will face higher-priced South Korean cars, more expensive Indonesian clothes and pricier Tunisian dates and olive oil.

They’ll be far worse off than the penguins of Heard Island.

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Original URL: https://www.theage.com.au/link/follow-20170101-p5mdah