Despite Trump’s tariffs, free trade is still the future
Trump will claim that tariffs can stop China ripping off Americans and bring jobs back home, but in reality they will only make his country poorer, says Harrison Griffiths
Well, he’s done it again. Donald Trump is set to return to the White House after pulling off a now-characteristic upset in last night’s presidential election. As the triumphant drumbeats of his supporters and shellshocked meltdowns of his opponents begin to mellow over the next week or so, the real work begins to understand what the policy outlook of Trump’s second term really is.
One of the issues which looms large is tariffs. Central to Trump’s initial appeal to left-behind, post-industrial areas across the United States was his pledge to push back against economic globalisation. New tariffs would be implemented to stop China ripping Americans off and bring lost jobs back home. Or, so the theory went.
In reality, Trump’s first-term tariffs only made Americans poorer. A comprehensive study of the impact of Trump’s 2018 and 2019 tariffs on Chinese products estimated an annual cost of $831 per American household, of which only $211 was collected in tax revenue. Others have shown reductions in real wages, investment, and long-run GDP.
His new tariff pledges, which include 60 per cent tariffs on Chinese imports and a general 10 per cent levy on all foreign imports, have been met with projections of similarly dire outcomes. The Peterson Institute for International Economics, for example, estimates that they “would cost a typical household in the middle of the income distribution at least $1,700 in increased taxes each year.”
Hostility to trade
Trump’s misguided hostility to trade is, tragically, part of a broader turn towards protectionism in the West. Tariffs and subsidies for preferred domestic industries have already fostered geopolitical tensions, as well as tangible economic harm. The US-EU dispute over industrial subsidies from America’s Inflation Reduction Act is a good case study in how protectionism has caused fissures that the Western alliance can ill-afford.
But the case for free trade remains as strong as ever. Breaking down barriers to exchange and competition between different countries has been, and continues to be, one of the most powerful tools in our armoury in the fight to end poverty and increase liberty. And the global picture is not all doom and gloom.
As new research published this week by the Initiative for African Trade & Prosperity shows, there is an oven-ready, continent-wide free trade agreement that has the potential to lift tens, if not hundreds, of millions of Africans out of poverty by the middle of the next decade.
The African Continental Free Trade Area (AfCFTA) is the African Union’s most ambitious free trade project to date. It aims to eliminate 90 per cent of all tariffs within the continent within 10 years, with a view to establishing a full customs union and free movement of people in the long-run. Just implementing the first phase of this project could expand regional income by $571bn and lift 50m people out of extreme poverty according to the World Bank. When the number of people the AfCFTA could bring out of relative poverty are factored in, the total rises to over 100,000,000.
The AfCFTA is by no means a panacea for free trade or silver bullet to solve Africa’s problems. It does face significant hurdles to full implementation, including persistent non-tariff barriers to trade, crony capitalism, and weak institutions, including the rule of law, in many states.
Nonetheless, the agreement has been signed by 55/56 African nations and fully ratified by 48. Thanks to the work of the IATP’s partners and an ever-expanding movement in support of breaking down trade barriers, there is real hope that the AfCFTA’s full, transformative potential can be realised.
Trump’s election victory confirmed that the case for free trade is being lost in the West. But supporters can find hope and inspiration from unlikely sources. If Africa can overcome the myriad challenges facing the AfCFTA’s implementation, the free trade cause will have achieved its greatest victory to date.
Harrison Griffiths is head of partnerships at the Initiative for African Trade & Prosperity and international programmes manager at the Institute of Economic Affairs.