In 2013, the Serbian American economist Branko Milanovic published a graph that’s come to be known as the elephant curve: it describes the distribution of income growth for different income groups across the world from 1988 to 2008 – the high-tide mark of global capitalism.
The curve shows significant gains for the rising middle-classes of developing nations – China, India, Vietnam, Malaysia, Poland – who comprise the elephant’s back, signifying hundreds of millions of people rising out of poverty.
But the middle- and lower-income workers of already wealthy democracies, notably Western Europe and the US, stagnated or declined, while the global elite – the richest 1% of those developed democracies – enjoyed astonishing gains and make up the proudly erect trunk at the far right of the wealth distribution.
The populist demagogues now flourishing in those nations accuse their economic and political elites of selling out their own voters to foreign interests and enriching themselves in the process – and it’s hard to say they’re wrong. Back in 2016, the left-wing documentary-maker Michael Moore warned that disenfranchised working voters saw Donald Trump as a human hand grenade they could use to intentionally blow up the system, taking vengeance on the leaders who neglected them.
To be fair to Trump, he promised to do exactly this: a suite of trade tariffs was his key policy promise in the 2024 presidential campaign and on “Liberation Day” he delivered.
Reviving the old days
There’s a version of a protectionist policy that might have incentivised US industries to reshore advanced manufacturing from China and other East Asian economies, replacing the abandoned, rusting factories of the Midwest with gleaming new semiconductor fabs and gigafactories churning out self-driving cars, consumer robots, autonomous drones and AI-enabled phones. Perhaps it could have delivered a glut of well-paid blue-collar jobs, while trade tariffs generated revenue and returned the US economy from trade deficit to surplus.
That’s the policy the tech CEOs who funded Trump’s campaign thought they were getting, and what investors hoped for when markets rose after the election, leading conservative economists to insist the tariffs were already priced in. What they got – along with the rest of the world – was the hand grenade Moore warned about nine years ago. An incomprehensible trade war conducted against nearly every other nation simultaneously, which seemed to single out many of America’s traditional allies, all based on tariff calculations determined by trade deficits that make no economic or geopolitical sense.
Before he pushed pause, this crashed global markets and threatened to send the US into a recession. If Trump returns to and remains committed to tariffs, the US could easily stay there for the remainder of his term as inflation surges while growth collapses, and the President iterates through the classic Muldoonist playbook: feuding with his central bank, trying to fix interest and exchange rates and set prices and wages, denouncing globalist saboteurs and wreckers for undermining his beautiful economy.
The new fees on New Zealand’s exports to the US are minimal but we could easily slump back into negative growth as tourism declines and our other trading partners stagger under the demand shock imposed on them by the world’s largest economy shutting itself off.
Undergrad antics
There’s always the risk we could have massive tariffs imposed on our goods tomorrow, based on a presidential whim, or even for no reason at all. The government needs to remain tactful and non-confrontational towards the US to prevent this.
As High Commissioner to the UK, Phil Goff could have inflicted enormous damage when he behaved like an undergraduate student, delivering more of a comment than a question regarding Trump at a diplomatic event in London.
Labour and National have long rewarded their retired senior MPs with ambassadorial sinecures, and New Zealand First leader Winston Peters has long bristled at this practice. He must have been secretly delighted Goff handed him such a golden opportunity to thin out the ranks of political hacks diluting his beloved diplomatic corps.
The opposition has room to be a little more combative. The Greens and Te Pāti Māori are too obsessed with themselves to take notice of the historic events rapidly overtaking us, but Labour’s departing Foreign Affairs spokesperson, David Parker, has urged the government and its trade officials to expand the Comprehensive and Progressive Trade Agreement for Trans-Pacific Partnership. This is the rebranded Trans Pacific Partnership, furiously attacked by unions and academics when antiglobalisation was a left-wing cause in the long-ago late 2010s.
New Zealand was a founding member of this trade pact, and it’s a more sophisticated framework than the now largely defunct World Trade Organisation.
Europe has been heavily penalised by Trump’s tariff regime and if it entered the CPTPP – lowering its own barriers as the price of admission – it would create a vast free trade bloc.
When the US closed off its economy in the 1930s, it deepened the Great Depression around the world. But perhaps the global system is more robust now, able to route around US havoc, instead of being dragged down. This path, though, is only viable if the gains from free trade are more evenly distributed.
Otherwise, the losers trapped in the downward curve of the elephant graph will keep tossing in hand grenades, grimly determined to keep blowing up the system until their own prospects improve.
