Extract from ABC News
Donald Trump criticised what he believed to be unfair trade practices on the Oprah Winfrey Show in 1988. (Getty: Paul Natkin)
Donald Trump's preoccupation with tariffs as both a weapon and a bargaining chip isn't new.
The US President's protectionist approach to trade actually dates back to 1988, to his past life as a real estate mogul.
That was when the Art of the Deal author was winding his way through the US talk show circuit, espousing views that would one day land him in the Oval Office.
"We let Japan come in and dump everything right into our markets, it's not free trade," he told Oprah Winfrey.
"They come over here, they sell their cars, their VCRs, they knock the hell out of our companies."
Trump's trade complaints were echoed by others. In the early 1980s, three of America's top automakers were in financial distress and struggling to compete against cheaper and more fuel-efficient cars from Japan.
Then-president Ronald Reagan was pro-free trade and against imposing restrictions on imports and exports.
But after pledging to support the domestic auto industry, Reagan's team reached an agreement with Japan in 1981 to introduce a voluntary import quota, a non-tariff trade barrier that limited the nation's shipments of cars to the US.
Susan Stone is an economist and Credit Union SA chair of economics at the University of South Australia and says it ultimately hurt consumers.
"[The quota] ended up increasing the cost of cars even though they were manufactured in [the United States]," she tells ABC Radio National's Rear Vision.
"Overall, all car costs increased, so the consumer lost out."
Ronald Reagan negotiated with Japan to introduce a voluntary quota in May 1981. (Reuters: Mike Marucci)
More than 40 years later, Trump is going even harder on trade, announcing a 25 per cent tariff on all automotive imports to the US and imposing similar levies on goods from Mexico, Canada and China.
His next round of reciprocal tariffs is set to begin on April 2 (US time), which he's dubbed "liberation day".
The trade restrictions are a central part of Trump's economic vision. He insists the taxes will make "America rich again" by generating more revenue and encouraging American consumers to buy more US-made goods.
But economists say the net effect of tariffs deliver mixed results, with consumers likely to end up paying more.
Why economists are sceptical of tariffs
Tariffs are a tax imposed on goods imported into a country and are set as a percentage of the value of the foreign goods being brought in.
It's generally the companies that bring the items into the country that pay the tax and it's up to them whether they pass on some or all of the cost onto consumers.
Almost every country has some sort of tariff system, but there are three main reasons why they are imposed, Dr Stone says: to raise revenue; protect domestic industry; or create "reciprocity", which is when countries negotiate mutual concessions on import restrictions.
Howard Lutnick, a billionaire who played a key role in Trump's election campaign, suggested last year the latter was the main reason behind the President's tariff strategy.
Tariffs can be politically popular but most economists oppose them because they can distort the market by making imports more expensive. This is why they are referred to as a trade barrier.
Donald Trump is set to deliver another round of tariffs on April 2 in the United States. (Reuters: Evelyn Hockstein)
Dr Stone says tariffs are "not considered to be very effective or very fair" for individual consumers.
"We generally frown upon protecting domestic industries, because we find that over time, they just become dependent on the tariff and they never really break out of that protection bubble and compete effectively on their own," she says.
"If you want to raise revenue, there are better ways to do it … because they're very regressive.
"It means that everybody pays the same increase in the cost of a car, whether you are making $40,000 a year, or $400,000 a year."
Despite this, there are countless examples of tariffs being used throughout US history.
Tariffs, trade and a 'beggar thy neighbour' policy
Almost from the time America was founded, tariffs were used to raise revenue for the government, accounting for 50 to 90 per cent of US federal income between 1798 and the beginning of the 20th century.
That changed with the establishment of a federal income tax in 1913, which provided a new source of government revenue and ushered in a brief period of freer trade and lower tariffs in America.
The US government's approach to tariffs changed again in the 1920s when American farmers started pushing for import taxes to protect their industry from foreign competition. Their calls were quickly echoed by other sectors.
"All sorts of industries started lobbying for tariffs, even if they weren't really dealing with foreign competition," says Brian Domitrovic, an economic historian and the author of Taxes Have Consequences: An Income Tax History of the United States.
In 1930, President Herbert Hoover introduced the Smoot-Hawley Tariff Act, a 25 per cent tariff on up to 800 foreign goods across a broad range of categories.
Willis C Hawley (left) and Reed Smoot meeting shortly after the signing of the Smoot-Hawley Tariff Act. (Wikicommons: National Photo Company at the Library of Congress)
Several nations responded with reciprocal taxes against US exports in what became a trade war. Within a few years, global trade dropped by 60 per cent.
"It's what's known as a 'beggar thy neighbour' policy, where everyone is cutting off trade, and everyone's trade goes down and it helps out no-one in the end," says Douglas Irwin, professor of economics at Dartmouth University.
Dr Stone says there are many, many studies that argue the tariff act actually precipitated the Depression across the global economy, because "trade almost ground to a halt".
After World War II, global trade was seen as the key to rebuilding economies and the US took part in efforts to restore stability.
Delegates from 44 countries agreed to participate in an international monetary system that fixed exchange rates to the US dollar, which was pegged to gold.
Under the Bretton Woods system, countries were required to maintain their currency pegs, which meant they were less likely to devalue their currencies to make exports cheaper, a practice which was rife in the 1930s trade wars.
Next came the creation of the General Agreement on Tariffs and Trade (GATT) in 1948, the precursor to the World Trade Organization and an era of lower tariffs.
"That was the great theme of …1945 to 1975, the world was supposed to have a monetary system that was based on fixed exchange rates and the dollar redeemable in gold, and then the decline in trade barriers," says Mr Domitrovic.
But this period of less trade volatility didn't last.
Reagan and America's car industry
The hope for the Bretton Woods international monetary system was that it would ensure exchange rate stability and promote economic growth.
But by the 1970s, the system was beginning to fall apart.
Foreign countries had become so reliant on the dollar that they held more dollars than the US had gold reserves to back them up.
Around the same time, the Nixon administration was growing concerned that the valuation of the American dollar was undermining the nation's foreign trading position.
So in 1971, Richard Nixon suspended the convertibility of the dollar to gold, ending the Bretton Woods system and kicking off a decade of economic turmoil marked by soaring inflation and high unemployment.
Mr Domitrovic says higher prices, coupled with a tax code that was hurting businesses, were a disaster for US manufacturing.
America's auto industry wasn't immune as it grappled with increased competition from Japan and a change in American consumer tastes towards smaller, more fuel-efficient vehicles.
America's auto industry was struggling in the 1980s. (Getty: Michael Brennan/Mirrorpix)
"The American consumer market for motor vehicles became characterised by a big leap in imports from Japan, and this was met with a lot of concern in the United States, both in the industry and in the government," says Justin Brown, a former Australian Ambassador to the EU and NATO.
Shortly after Reagan entered office, he negotiated the voluntary quota, which limited Japanese imports to 1.68 million vehicles per year.
Japanese cars became more expensive, eventually forcing the automakers to invest in the US by building production facilities and making cars locally.
But Mr Domitrovic argues the trade restraints did little to improve America's car manufacturing industry or the businesses of Chrysler, Ford and General Motors.
"It's that perverse incentive when you put up a prohibitive trade restraint, the domestic industry becomes much less than world-class and the picture-perfect example of that was the American car industry in the 1980s," he says.
"It really killed the American car industry."
Reagan later imposed 45 per cent tariffs on Japanese motorcycles and a 100 per cent tariff on a wide variety of other goods from Japan, including computers and televisions.
Mr Domitrovic says the quota example highlights one of the problems with tariffs, in that they do little to improve the strength and success of a domestic industry in the long term.
"It coddles your own industry and makes your industry much less competitive with the rest of the world, much worse than the rest of the world, because by definition, they don't have any pressure to compete," he says.
The rise of China
Free trade flourished again through the 1990s.
The next shock came with the expansion of China's share of global manufacturing exports at the turn of the century.
Workers assemble circuit boards at a production line in a factory in China. (Reuters: Bobby Yip)
Intensifying import competition from Beijing meant some US manufacturing firms experienced declining demand for the goods they produced, which resulted in the elimination of jobs.
"Before the US was worried about imports of Japanese cars, Japanese electronics, but wages and costs were much higher in Japan than in some other less developed countries," says Scott French, an economics lecturer at UNSW Sydney.
"What happened with China was this massive shock to the world production networks that was absorbed by the rest of the world's economies."
Most economists agree free trade is better for the global economy but it can come at a cost, especially to the industries impacted by import competition and the workers who lose their jobs.
With hindsight, Mr French says the ratcheting up of some tariffs against China in the late 1990s might have helped ease the transition for the manufacturing sector, instead of the "massive shock" it experienced at the time.
Decades later, the impact of that shift is still being felt, providing fertile ground for Trump's push for a different trade dynamic with Beijing.
"When the world economy grows, that's good for exporters. But that pain was felt. It was felt very severely and it was in particular areas, and those people we know became in large numbers Trump voters," Mr French says.
The US president began imposing China-specific tariffs — up to 25 per cent on some imports — in his first term.
Beijing responded with "smart" retaliatory tariffs on US goods, according to Mr French.
China has retaliated against US tariffs with 10 to 15 per cent hikes to import levies on many American agricultural and food products. (Reuters: Carlos Barria/Pool)
"They targeted agricultural goods that were grown in areas that were very heavily Republican and that hurt those producers," Mr French says.
"And the US enacted some subsidies to try to compensate for that, but that again, cost the government."
This time around, Trump has slapped a 10 per cent tariff on Chinese imports before doubling them to 20 per cent in March.
Still, Mr Domitrovic says there is potential for a better trade relationship with China — if the President can pull it off.
"The Chinese currency is not something that anyone globally volunteers to hold or to seek out, so the Chinese really try to keep a lot of American dollars on hand just for their own investment purposes," he says.
"Because that's what people want globally and as a reserve to give credibility to their own currency. So China really wants to trade with the United States, and they have to keep the flow of [US] dollars intact towards China, or else it would really complicate China's investment and influence strategy globally."
While that may be true, China isn't the only country being slapped with tariffs. Many other countries are in the firing line, including Australia.
What impact will Trump's tariffs have?
Since returning to the White House, Trump has imposed tariffs of 25 per cent on Canadian and Mexican imports and 25 per cent tariffs on all steel and aluminium imports — including those from Australia.
In his next round of tariffs on April 2 (US time), Trump is set to introduce a reciprocal-tariffs plan that will see the US impose a similar tax on imports from foreign countries that charge any kind of tax on US exports.
Australia is bracing for the possibility that the White House might consider Australia's GST or discounted purchases it makes through the Pharmaceutical Benefits Scheme to be "tariffs" worthy of reciprocating.
Trump has dubbed the April 2 reciprocal tariff plan "liberation day". (Reuters: Kevin Lamarque)
The US president promises that trillions in revenue and unprecedented job creation will make up for any pain experienced by Americans.
"There will be a little disturbance, but we're OK with that. It won't be much," he has previously said.
History tells a different story.
"The research we've had since the Trump tariffs [in his first term is] that they essentially got passed through 100 per cent toward US businesses and consumers through higher prices," Mr French says.
"It actually looks like a lot of those margins shrank for the retailers. So it wasn't the consumers that ended up paying the bulk of it. It was businesses, the industries that were protected didn't see any increase in jobs."
Economists warn tariffs can also reduce employment and wages in exporting sectors, even if they are politically popular.
"What ends up happening is everybody loses a little bit, but the firms that gain the protection gain a lot. Because they gain more," Dr Stone says.
"They have more of a motivation to come in and argue for those tariffs or to keep the tariffs in place. They have a lot more to lose than every individual who only loses a little bit."
What can make tariffs even trickier is their domino effect, with future administrations unwilling to remove tariffs installed by their predecessors because of the perception that they work.
Economists point to Pennsylvania and its steel industry as one such example.
"No administration that wants to win Pennsylvania is willing to say we're going to have free trade on steel," Mr Irwin says.
"So even though President Trump imposed tariffs on steel, President Biden wasn't really going to get rid of them. He wanted to support that constituency and get their continued political support."
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