China’s trade surplus hit $1.2 trillion in 2025 – a record, up 20 per cent from the previous year’s record of $992 billion, which was itself up from the record before that. Trump’s tariffs, in other words, have worked exactly as well as his casinos. While exports to the United States fell 20 per cent, shipments to Africa surged 26 per cent, to Southeast Asia 13 per cent, to Europe 8 per cent. The goods didn’t stop flowing; they just found new routes. So much for reshoring manufacturing to Ohio.
Economic theory offers no unambiguous verdict on tariffs, and history provides evidence for both sceptics and true believers – much like the debate over whether Shane Warne was better than Murali, except with more spreadsheets and fewer leg breaks. The canonical free trade position, descending from Ricardo’s comparative advantage, holds that tariffs reduce aggregate welfare by distorting price signals, misallocating resources, and inviting retaliation. This is the gospel preached at Treasury, the RBA, and every CBD think tank funded by mining conglomerates with extensive supply chains through Shanghai.
Yet this orthodoxy coexists uneasily with the historical record. The United States industrialised behind tariff walls averaging 40-50 per cent from the Civil War through the 1920s; Germany’s Zollverein and Bismarckian protectionism nurtured heavy industry; Japan and South Korea deployed strategic tariffs alongside export subsidies to cultivate infant industries that later achieved global competitiveness. Funny how the countries telling us to embrace free trade only discovered its virtues after they’d already climbed the ladder.
The empirical literature is more equivocal than the textbooks suggest. The East Asian developmental states – Taiwan, South Korea, Singapore – combined selective protection with aggressive export orientation, suggesting tariffs work best as part of a coherent industrial strategy rather than as the blunt instruments of a former reality TV host with impulse control issues. Australia, of course, tried protection once. We built Holdens and Fords and even washing machines, until successive governments – Labor and Liberal alike – decided we’d be better off digging holes and selling degrees to international students. How’s that working out for sovereign capability, eh?
What distinguishes successful from unsuccessful tariff regimes appears to be conditionality and temporality. Effective infant industry protection was time-limited, performance-linked, and embedded within broader policies promoting technological upgrading. Firms receiving protection faced pressure to become internationally competitive or lose state support. South Korea didn’t just protect Hyundai – it made continued support conditional on export performance, and firms that failed to deliver lost state backing with ruthless speed. By contrast, permanent protection tends to calcify inefficiency and reward rent-seeking, which explains why our car industry ultimately collapsed while Korea’s became a global powerhouse.
Trump’s tariffs fail every criterion that made historical protectionism occasionally effective. They lack conditionality: no performance benchmarks, no sunset clauses, no linkage to domestic capacity-building. They lack strategic coherence: imposed across thousands of product categories with all the surgical precision of a sledgehammer in a china shop – or, more aptly, a China shop. And they lack multilateral coordination: unilateral action has simply rerouted trade through Vietnam, Malaysia, and Mexico rather than reshoring production to the Rust Belt.
The lesson for Australia? Tariffs can work – but only as part of an industrial strategy we abandoned decades ago in favour of shipping iron ore to the very country we’re now supposed to be ‘de-risking’ from.
The incoherence is breathtaking: we’re preparing to spend $368 billion on Aukus submarines to counter a threat we’re simultaneously financing through our trade dependency, while having spent 30 years dismantling the civilian industrial base that might otherwise support sovereign defence manufacturing.
We kicked away our own ladder, and now we’re surprised to find ourselves stuck on the ground. Still, at least those submarines should arrive sometime around 2040 – assuming, of course, that nothing interesting happens in the Taiwan Strait before then.
