President Trump’s eyes might be on China with his latest tariff package now in effect, but he should instead look to Australia’s economic success through the 2008 global financial crisis for a smarter approach to trade policy.
With ever-growing evidence that his policies will hit consumers with higher prices, Americans should be imploring Trump to think again. In June, Australia hit a whopping 27 years since its last recession, one of the few developed economies to avoid financial turmoil during the last decade’s economic meltdown. That remarkable achievement is largely because of the country’s full embrace of free trade and foreign investment—practices America used to similarly embrace. Now, there’s every danger that Trump’s growing addiction to protectionism will be catastrophic for America’s workers.
The Lessons of Western Australia
The fear that gripped the world a decade ago during the financial crisis is still etched in many memories, and the years that followed brought rising unemployment, debt crises, and economic malaise. By comparison, a place where gross domestic product would grow nearly 40 percent in the following eight years and where unemployment would fall below four percent seems nearly fictional.
Yet, that was exactly the experience of Australia’s largest state, Western Australia. The region has higher income per capita than the United States—about $70,000, a spectacular feat. During the past 15 years, a staggering $400 billion of private investment flowed into the state’s mining and energy $400 billion, expanding export capacity for goods such as iron ore. Most of those exports—Trump will adore this—are sold to China, totaling about $45 billion annually.
There is a warning for Americans in this fairytale, too. For most of the 20th century, Western Australia’s economy suffered under the protectionist policies Australia’s national governments used to prop up manufacturing in other states. Tariffs on cars hit rates as high as 143 percent, thrusting higher prices onto consumers. Today, many American businesses believe Trump’s hardline tariffs will impact the availability of everyday items such as gardening equipment.