Latest posts

Trump and other hypocrites

Published in Insights, The New Zealand Initiative’s newsletter, 16 March 2018

US President Donald Trump’s new protectionism is populist, wrong and dangerous. Sadly, that does not mean that his loudest opponents can automatically claim the moral high ground.

Since David Ricardo explained in 1817 why countries trading with each other are always better off without trade restrictions, the economics profession has been in favour of free trade.

History has since provided plenty of examples to support Ricardo’s theory.

Neither theory nor practice prevented Trump’s attack on trade over the past weeks. First, he imposed steel and aluminium tariffs. Now, he has threatened European carmakers with high import duties.

Ironically, as a politician President Trump behaves differently from the property entrepreneur he once was. When his own company once needed aluminium for the façade of a new hotel in Chicago, he was all too happy to accept a bargain price and imported the materials from China.

Trump is hypocritical as he now opposes the same trade practices he personally benefitted from.

But Trump’s opponents do not lack in hypocrisy, either. The same people now crying the loudest about Trump’s war on free trade could do with a look in the mirror.

For a start, the European Union has been vocal in its opposition to Trump’s new tariffs. How dare Trump threaten Mercedes and BMW with new import duties, they complain.

Well, the Europeans’ own track record on car imports is not that impressive either. Tariffs on imported cars are 2.5 percent in the US – but 10 percent in the EU.

If the Europeans cared for their credibility and economic efficiency, they should slash their own car import duties to 2.5 percent (or, better still, to zero).

Trump’s attack on steel and aluminium imports should also sound familiar to the Europeans. Their own anti-dumping department has been busy shielding the European market from allegedly unfair competition for more than a decade.

On most measures, the EU is more protectionist than the US, with an average weighted tariff of 3 percent compared with the US’ 2.4 percent.

Even here in New Zealand, we should be careful with critiquing Trump’s protectionism. Though generally free-trading, we still charge duties on items such as shoes, accessories and clothing for no good reason.

When discussing free trade, most governments sit in their own glasshouses.

Trump’s protectionism deserves a response. But it should be an even greater commitment to free trade, not retaliation.

%d bloggers like this: