How Donald Trump copied what Australia did when it came to import tariffs

Today marks the first anniversary of a ceremony certifying Donald Trump as the 47th President of the United States.

Two months after a joint session of Congress met to confirm his Electoral College victory against Democrat Kamala Harris, he embarked on the most punitive tariffs since the Smoot-Hawley Tariff Act of 1930.

President Trump this week hailed his tariffs for encouraging investment into the United States.

“Without tariffs, we wouldn’t have 10 cents being invested,” he told reporters on Monday aboard Air Force One.

If history is any guide, tariffs could make inflation worse in years to come, even if American inflation is still tamer than Australia’s price pressures for now.

The annual pace of American inflation stood at 2.7 per cent in November.

This was well below the equivalent level of 3.8 per cent for Australia in the year to October.

But the higher costs of making goods in the United States could eventually lead to longer-term American inflationary pressures, as prices are increased to absorb wage pressures.

“Will wages adjust in response to the tariffs?” University of Technology Sydney industry professor and chief economist Tim Harcourt told The Nightly.

Australian steel and aluminium being exported to the US are now subject to 50 per cent tariffs, on national security grounds, with everything else from Australia incurring American import taxes of 10 per cent.

Former Labor industry minister Ed Husic described those metal tariffs as a “dog act” - and that was back in March when they were still at 25 per cent.

However, it’s worth remembering that Australia was ramping up protectionism when colour TVs were considered cutting-edge technology.

Former Liberal prime minister Malcolm Fraser hiked import tariffs to 57.5 per cent in 1978 - up from an already high 45 per cent - during an era when Australian-made Holden Kingswoods and Ford Falcons dominated the roads, alongside the occasional Chrysler Valiant.

His Labor predecessor Gough Whitlam’s 25 per cent surprise tariff cuts in 1973 were a short-lived experiment - and a political disaster - during a period of soaring inflation that was getting worse even before the OPEC oil crisis.

High tariffs proved to be economically destructive with Australia having double-digit inflation and unemployment by March 1983, an economic phenomenon known as stagflation.

“At a time of high inflation, stagflation, the tariffs just basically transferred global inflation into the domestic price level,” Professor Harcourt said.

“It stopped labour and capital going to productive industries and it basically meant there was no incentive for companies to do anything because they knew they could go down to Canberra and get their tariff protection again.”

Bob Hawke was opposed to tariff reductions as ACTU leader during the 1970s but as a Labor prime minister in 1988, he started the process of reducing tariffs from 57.5 per cent to 37.5 per cent by 1991, in a staged process with his treasurer Paul Keating.

Under John Howard, they fell from 27.5 per cent in 1996 to 10 per cent by 2005.

The trade liberalisation continued under Labor PMs Kevin Rudd and Julia Gillard, with tariffs dropping to 5 per cent in 2010.

By 2017, Australia no longer had a car industry with the last Holden Commodore rolling off the production line in Adelaide, while bilateral free-trade deals ensured that imported cars from Thailand, the US, China, Japan and Korea were no longer incurring any tariffs.

Professor Harcourt, who was also part of former Victorian premier Steve Bracks’review into industry protection in 2008, said high tariff barriers would not have protected Australian car manufacturing jobs, because Thailand now makes four-wheel drives and utes with much cheaper labour.

“Tariffs could have slowed it, but it wouldn’t have stopped it at the end and the Australian consumer would have basically paid for a delay,” he said.

The US, the world’s biggest economy, will continue to make cars for the world’s biggest consumer market. And being the world’s reserve currency, it has been able to keep a lid on inflation despite its widespread tariffs.

What works for the Americans, politically at least, didn’t work in Australia, with neither major party looking at retaliatory tariffs or a revival of a trade war from another era.

That’s unless Liberal backbencher Andrew Hastie takes over as Opposition leader from a politically struggling Sussan Ley and returns the Coalition to power on a platform of bringing back protectionism.

“Both the Liberals and Labor have let us down in the past by letting the car industry disappear from our shores,” Mr Hastie said in a Facebook video in September.

To the nostalgic, that is a dog act.