What Australia Can Teach President Trump about Trade

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.

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.

Most of those exports—Trump will adore this—are sold to China, totaling about $45 billion annually.

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 industries, 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.

Australia gradually scaled down its protectionism.

Possibly the worst Australian trade policy was a ban on iron ore exports, created to support local steel manufacturers, which existed for two decades until it was lifted in 1960. Imagine—a mining industry which now supplies half the world’s seaborne iron ore would not have existed because of shortsighted government intervention. America, too, may never know which new innovations will be priced out of the market thanks to Trump’s tariffs’ raising business costs.

Australia gradually scaled down its protectionism, and that was not without consequences—the country doesn’t make cars anymore and employment has moved from manufacturing into healthcare and education. But how is this for irony: Western Australia’s biggest mining firms are world leaders in the automation of transport.

Comparative Advantage Is Important

Automation often brings concerns of job losses, yet the mining industry is employing more people than it did a decade ago. Using a workforce in the most productive way possible, rather than in inefficient industries that require protection, undergirds high living standards. In exchange for the iron ore, Australia can buy a greater number of foreign-made cars than it would have been able to cost-effectively produce itself.

The supply chain is truly global—American capital and Aussie workers feed Asian demand.

Foreign capital was also crucial for Western Australia’s economic success. Recent gas projects backed by US energy business Chevron serve as examples—they’ve invested about $80 billion. One of those projects, Gorgon, is expected to generate $1 trillion (AU) of output for Australia over its lifespan. The initial capital could never realistically be generated in a country with a small population of 25 million. But, without foreign investment, the gas resources would never be unlocked, and without free trade, they would never be used. The supply chain is truly global—American capital and Aussie workers feed Asian demand.

Trump needs to accept that not every nation can do all things and do them all well. So why wouldn’t a patriotic country focus on what it does best and what can generate the highest living standards for its own people? Despite his tax reform achievements, President Trump is simply wrong on trade.

While the rest of the world moves on, searching for new ways to work together for profit, America is looking to the past. If Mr. Trump continues to take the U.S. economy back in time with his dated protectionist policies—I’ll borrow a turn of phrase from the man himself—“believe me,” China really will be laughing.