Trump trade war gets off to a bizarre start on drugs

Australia is not a known supplier of illicit drugs such as fentanyl to the United States so we should not be too concerned about Donald Trump’s new tariffs, right? Not so fast. There is not always a lot of logic to the way Mr Trump has shown his willingness to ignore US free trade agreements even with his country’s closest allies. The Wall Street Journal editorial board reminds us of the joke that it’s risky to be America’s enemy but it can be fatal to be its friend.

From Tuesday, the US will impose a 25 per cent levy on imports from Canada and Mexico, a 10 per cent tariff on energy products from Canada, and an additional 10 per cent tariff on China. The tariffs will be imposed under emergency economic authority never before used for tariffs “because of the major threat of illegal aliens and deadly drugs killing our citizens, including fentanyl”, Mr Trump posted on social media.

There will be no exemptions to the tariffs and the duties will be in place until the White House is satisfied that the trading partners have scrubbed out the illicit fentanyl tracking into the US.

Mexico’s government wasn’t formally notified of the US measures, even after the White House released its fact sheet outlining its unilateral tariffs, said one Mexican official. China’s Xinhua news agency quoted previous statements from its foreign and commerce ministries saying trade wars aren’t beneficial to either country, or the world.

Canada responded with 25 per cent tariffs of its own against $C155bn ($172bn) worth of American goods. This includes $C30bn worth of goods as of Tuesday, followed by further tariffs on $C125bn worth of American products in 21 days’ time to allow Canadian companies and supply chains to seek to find alternatives.

Exactly what shape a Trump trade war will take from here, and how long it will persist, remains uncertain. But, drugs aside, there are grave risks for Australia that must urgently be addressed.

The Albanese government must engage quickly and earnestly to protect our national best interests. This includes finding the right people who can interact meaningfully with the new Trump administration. Greg Norman has proved himself in the past able to help facilitate talks between Australia and a golf-mad President. Joe Hockey was successful in pleading our interests when he was ambassador.

Exactly how well Kevin Rudd will be able to work with the new Trump administration remains unclear. The government and opposition have both been publicly supportive of Dr Rudd, and quick to say he is respected and has been able to build fruitful relations across the political divide in the US. But given there is so much at stake, the Albanese government must have a Plan B.

Australia would not ordinarily be a target of US trade disquiet given that, unlike other nations, we do not have a large trade deficit to concern Mr Trump’s nationalistic agenda. But, as trade war Mark I in Mr Trump’s first presidency showed, Australia can quickly become collateral damage.

This is particularly so if the US is prepared, as it was in the past, to trade American farm interests against those of Australian producers for access to markets in China. The use of drug trafficking as a justification for the trade sanctions suggests the trade initiatives are largely for domestic political consumption and can be quickly adjusted. Nor do the claims make sense. As Canadian Prime Minister Justin Trudeau made clear, less than 1 per cent of fentanyl currently makes its way to the United States via Canada.

Be prepared for plenty of bizarre twists in a North American trade war that is being described by US financial commentators as one of the dumbest in history.