Waters of free trade muddied by politics, polluted by ignorance

Comment: It’s said that when America sneezes, the world gets a cold. But the US political rejection of free trade has gone beyond a sneeze. It’s an insular, isolationist upchuck.
And New Zealand, as a small trading nation, will catch it.
The NZ Institute of Economic Research has published a paper on what the November 5 election in the US means for trade. The last Donald Trump presidency was bad for world trade, it observes. “When Trump ripped up the Trans Pacific Partnership deal on his first day in office, it was clear we were in for a rough ride.”
The report’s conclusion is grim: Trump has now dragged that country’s domestic politics away from the rest of the world; whether the Republicans or the Democrats win next month, the trade outlook will worsen.
Trump sees tariffs as an answer to all America’s problems; he will increase tariffs by 20 percent across the board, and by 60 percent for Chinese goods. “If it looks foreign, put a tariff on it.”
This won’t just push up the prices of globally traded produce and goods; it will also push up the prices of American goods. And of course, it won’t solve the underlying US economic problems – so tariffs will likely increase further.
Yes, it was Trump who began a trade war by imposing US$300 billion of tariffs on China. But it was the Biden administration that added a further US$18b of tariffs, plus 100 percent tariffs on Chinese electric cars. 
Trump has so muddied the political waters that Kamala Harris is left with no choice.“The chances of a Democrat/Harris administration doubling down and increasing tariffs are high,” the report says. “You could also argue that there is little difference between the Democrats and the Republicans on tariffs. Once you head down the tariff road, it is unlikely you will turn back.”
Harris’ running mate is Minnesota Governor Tim Walz. Back in 2007, he gave a speech bemoaning the lack of a free trade agreement with New Zealand. “Everything seems to say New Zealand should be a much broader trading partner than they are,” he observed. “New Zealand has failed to be included in some of these trade agreements. Many of you in this room know probably what the reason for that is… They have refused to allow our nuclear submarines and our warships to dock there.”
Since then, our US trade deal prospects have only gone backwards. First the chances of a bilateral deal were trampled on the floor of Congress, and then Trump pulled out of the Trans-Pacific Partnership. Alongside this, the US has sabotaged the World Trade Organization by refusing to appoint appellate judges, so the dispute settlement process has been slowly strangled.
This isn’t to say that our existing US trade isn’t valuable. It’s our third biggest trading partner. In the year to March, NZ exported $14.6b of goods and services to the US. But those exports were subject to the kinds of tariffs that have been rejected by the more liberalised world.
And, as Walz said back in 2007, decisions on tariffs are determined by geopolitical considerations. That’s why Australian steel and aluminium can be sold tariff-free, but not New Zealand’s.
For example, Rio Tinto can sell its Australian-smelted aluminium to the US, but aluminium it smelts at NZ’s Tiwai Point attracts a tariff (albeit the high-grade product has an exemption). “We are supposedly an unfriendly nation,” says the report.
The smelter’s external affairs director, Simon King, tells me about 5 percent of its production goes to the US. “Like many New Zealand exporters, NZ Aluminium Smelter supports a low-tariff regime globally, which helps level the playing field for all manufacturers – here and overseas.”
We know, and to a degree accept, that trading relations will be muddied by geopolitical considerations. As an example, most New Zealanders would back the trade sanctions applied against Russia because of its war on Ukraine.
What is harder to accept is that the trading waters should be so polluted by ignorance. As Chris Nixon points out in his NZIER report, the impact of the US tariffs and wider trade policy mayhem has been to push up the US dollar (making its own products even less competitive), increasing prices for consumers in the US market, and costing about 200,000 US jobs. So much for putting America first.
Nixon argues the most worrying aspect of America’s tariffs is not the direct costs to New Zealand exporters like NZ Aluminium Smelter and NZ Steel, but the chilling impact on world trade. Looking only at US-New Zealand trade masks a bigger picture: that world trade is growing at just half the rate it did between 2001 and 2008.
For New Zealand, there are opportunities to trade with the rest of the world. For instance, Nixon suggests this country can be a staging post for East Asia and China to trade with South America. We can advance paperless trade with like-minded countries. We can continue the push for trade deals in the Middle East and India. 
But none of this will be enough to counter a further slowdown in global trade coming out of next month’s US election, regardless of who wins. “This surprised me when I did the analysis. I’d like to be wrong,” Nixon says.
“We’ve just got to be careful here – we are heading into really dangerous territory. And it’s not just dangerous for us, it’s dangerous for the world – and it’s also dangerous for the United States.”