Canadians already got to feel the consequences with a special 25% tariff just imposed on their country. And for small trading nations like New Zealand, the consequences could be severe.
Tragically, we have seen this cycle many times before. And the results of turning one’s back on trade are always disastrous.
David Ricardo first explained in 1817 how nations benefit from trade even when one country is more efficient at producing everything (his theory of comparative advantage).
French economist Frédéric Bastiat wrote passionately against protectionism in the 1840s, exposing the fallacies of tariffs with clarity and wit.
Their efforts were not in vain. Britain’s repeal of the Corn Laws in 1846 – agricultural tariffs that had kept food prices artificially high – ushered in an unprecedented era of trade liberalisation.
This Victorian free-trade revolution sparked the first great wave of globalisation, creating a remarkably interconnected world economy by 1900.
After World War I had shattered this order, British economist John Maynard Keynes penned a poignant lament for the lost golden age.
Before 1914, he noted, a Londoner could “sipping his morning tea in bed, order by telephone the various products of the whole earth”, and “adventure his wealth in the natural resources and new enterprises of any quarter of the world”.
That internationalised economic order, which seemed “normal, certain, and permanent”, collapsed with astonishing speed.
What followed was decades of economic nationalism, depression, and ultimately, another world war.
The world gradually rebuilt trade connections through post-war institutions such as Gatt but only approached the pre-1914 levels of global economic integration after the Cold War ended.
Since the times of Ricardo and Bastiat, economists have been unequivocal in their support of free trade. Surveys of professional economists consistently show overwhelming agreement that trade benefits nations overall.
Yet this economic consensus remains perpetually under siege from politicians who think they know better.
Trump’s self-description as “Tariff Man” is a new incarnation of that old impulse. It is also a particularly threatening one, given America’s global economic influence.
His rhetoric about America being “ripped off for decades by nearly every country on earth” resonates not because it is economically sound but because it provides a simple – and simplistic – explanation for various discontents.
For New Zealand, Trump’s protectionist turn represents an acute threat.
Unlike Singapore or Ireland, whose trade far exceeds their GDP, New Zealand has remained relatively less connected to global production networks due to geography and economic structure. Now, even our modest but vital international trade linkages face disruption.
New Zealand occupies a precarious position in Trump’s worldview.
We maintain a trade surplus with the US – currently about $2.6 billion – precisely the kind of imbalance that Trump misinterprets as evidence of American victimhood despite our virtually tariff-free treatment of American goods.
Trump fundamentally views trade as a zero-sum game where one nation’s gain must be another’s loss. This mercantilism is the opposite of what economists believe: that trade helps everyone involved.
While economists recognise that exports merely enable the true goal – importing the goods and services we want – Trump fixates on bilateral trade balances as if they were scorecards in a competition.
The consequences of his approach would mainly unfold through two channels.
Direct tariffs on New Zealand exports would immediately damage our dairy, meat, and wine industries. American consumers would pay more for New Zealand products, reducing demand and forcing our producers to accept lower prices to maintain market share.
But even if we somehow escape direct targeting, the indirect effects could be equally damaging. New Zealand’s largest export market remains China, taking roughly 25% of our goods.
If Chinese growth slows under the weight of American tariffs, demand for New Zealand’s primary exports will inevitably suffer.
Economic modelling suggests a broad trade war could reduce New Zealand’s GDP by nearly 1% – a significant blow to an already vulnerable economy.
What makes the situation particularly dangerous is our limited ability to respond.
Our geographic isolation and specialisation in agricultural commodities mean we cannot easily redirect trade flows or quickly develop alternative industries.
We have structured our economy around a rules-based trading system that is now unravelling.
The parallels to the pre-WWI era are disquieting.
Then, as now, a global economic order that seemed permanent proved remarkably fragile.
The retreat into economic nationalism that followed did not merely impoverish – it helped set the stage for global conflict.
Bastiat’s warning that “when goods do not cross borders, soldiers will” reminds us what is at stake.
For those versed in economic history, watching this unfold is an exercise in melancholy – melancholy about the optimistic, wealth-generating era we have lost.
It also evokes anticipation of horrors to come, even as Trump’s supporters cheer them on.
As Swiss historian and diplomat Carl Jacob Burckhardt once lamented: “It is one of the most difficult things that can be imposed on a thinking person, knowing that he has to witness the course of a historical process among the ignorant, the inevitable outcome of which he has long known with clarity”.
We have seen this film before. We know how it ends. And yet we seem powerless to stop its screening.
