EDITORIAL: A tit-for-tat trade war will leave us all worse off

Despite halfhearted reassurances from Foreign Affairs Minister Penny Wong and others that Australia is unlikely to become a direct target in President Donald Trump’s self-destructive and wrongheaded trade war, you can be certain that we won’t be immune to its fallout.

The Australian share market dived 1.8 per cent on Monday and the dollar hit a new four-year low of 61 US cents as investors reacted to news that Mr Trump would carry through with his threat to impose tariffs of 25 per cent on goods from Canada and Mexico and 10 per cent on China.

And there will be more to come.

Mr Trump’s tactic of using the threat of tariffs as a crowbar to bend other states to his will had some early success.

It took just a few hours for Colombia to agree to the White House’s demands late last month that it repatriate deported migrants or face 25 per cent tariffs.

But his new targets won’t be so easily bullied.

Both Canada and Mexico had little choice but to announce retaliatory counter-tariffs, despite knowing that there will be no winners from this game which threatens to upend supply chains which have served all three North American nations well.

Rather than be deterred, Mr Trump has threatened to widen the scope of his attack on free trade, saying that new tariffs on the European Union will “definitely happen”.

Mr Trump really does believe that “tariff is one of the most beautiful words in the dictionary”.

Unless somebody blinks, a global trade war appears inevitable.

And despite his own enthusiasm for tariffs, even Mr Trump appeared to admit that Americans will suffer for the instability in the global economy, writing on social media: “WILL THERE BE SOME PAIN? YES, MAYBE (AND MAYBE NOT!). BUT WE WILL MAKE AMERICA GREAT AGAIN, AND IT WILL ALL BE WORTH THE PRICE THAT MUST BE PAID.”

Mr Trump claims the object of this excursion is to stop the flow of unauthorised migrants and drugs such as fentanyl into the US.

Exactly how those target nations are supposed to stop those flows is unclear. Canada points out that just 20kg of fentanyl was discovered coming into the US at the northern border last year, while, while Mexican President Claudia Sheinbaum described as “slander”, Trump’s assertion that her government was working in alliance with drug cartels.

All the while, Australia and other trading nations around the world watch on nervously from the sidelines. Travellers and importers are already feeling the effects from day one through the fast depreciating Aussie dollar.

The global economy has long moved on from the fantasy of the self-sufficient, closed systems Mr Trump appears to aspire to.

Free and open trade benefits all players.

A tit-for-tat trade war will leave us all worse off.

Given its goals are ill-defined, further than projecting strength to a domestic audience, it’s difficult to see how this trade war will resolve itself. One can only hope that Mr Trump declares it’s mission accomplished before the world finds out just how ugly tariffs can really be.