Category: Australia

Source: The Conversation – USA – By Bedassa Tadesse, Professor of Economics, University of Minnesota Duluth

Feeling tariff whiplash? You’re not alone. On April 2, 2025, President Donald Trump announced sweeping new tariffs – a 10% levy on nearly all U.S. imports, along with targeted duties aimed at punishing countries he accuses of exploiting American markets. Just a week later, on April 9, his administration abruptly paused much of the plan for 90 days, leaving markets and allies scrambling for clarity.

The proposed tariffs were pitched as a way to revive U.S. manufacturing, reclaim jobs and counter what Trump considers unfair trade practices. But they immediately rattled the financial markets and raised alarms among economists and America’s global partners. Critics across the political spectrum revived a familiar warning: “beggar-thy-neighbor.”

History shows that such policies rarely succeed. In today’s interconnected world, they’re more likely to provoke swift, precise and painful retaliation.

What is the ‘beggar-thy-neighbor’ strategy?

The phrase comes from economic history and refers to protectionist measures – tariffs, import restrictions or currency manipulation – designed to boost one country’s economy at the expense of its trading partners. Think of it like cleaning your yard by dumping the trash into your neighbor’s property: It looks tidy on your side until they respond.

This approach starkly contrasts with the principles laid out by Adam Smith. In “The Wealth of Nations,” he argued that trade is not a zero-sum game. Specialization and open markets, he observed, create mutual benefit – a rising tide that lifts all boats. Trump’s tariffs disregard this logic.

And history backs Smith. In the 1930s, the U.S. adopted a similar strategy to the one Trump is experimenting with through the Smoot-Hawley Tariff Act, raising duties to protect domestic jobs. The result was a wave of global retaliation that choked international trade and worsened the Great Depression.

A case in point: Lesotho

As an example, consider the 50% tariff the United States imposed on imports from Lesotho, a small landlocked African nation. The measure took effect at midnight on April 3 but was reportedly subject to the 90-day pause starting midday April 4.

The tariff rate was calculated by taking the U.S. trade deficit with Lesotho – US$234.5 million in 2024 – dividing that by the total value of Lesotho’s exports to the U.S., or $237.3 million, and dividing that by two.

The 50% tariff would have a negligible effect on the U.S. economy – after all, out of the $3.3 trillion the U.S. imported in 2024, only a tiny fraction came from Lesotho. But for Lesotho, a nation that relies heavily on garment exports and preferential U.S. market access, the consequences would be severe. Using the same tariff logic across all partners, big or small, overlooks basic economic realities: differences in scale, trade capacity and vulnerability. It epitomizes beggar-thy-neighbor thinking: offloading domestic frustrations onto weaker economies for short-term political optics.

Lesotho is just one example. Even countries that import more from the U.S. than they export, such as Australia and the U.K., haven’t been spared. This “scoreboard” mentality – treating trade deficits as losses and surpluses as wins – risks reducing the complexity of global commerce to a tit-for-tat game.

The return of a familiar — and risky — playbook

Such thinking has consequences. During Trump’s first term, China retaliated against U.S. tariffs by slashing imports of American soybeans and pork. As a result, those exports plummeted from $14 billion in 2017 to just $3 billion in 2018, hitting politically sensitive states like Iowa hard. The European Union responded to U.S. steel and aluminum tariffs by threatening to target bourbon from Kentucky and motorcycles from Wisconsin – iconic products from the home states of former GOP leaders Mitch McConnell and Paul Ryan. Canada and the European Union have shown a willingness to use similar tactics this time around.

This isn’t new. In 2002, President George W. Bush imposed tariffs of up to 30% on imported steel, prompting the European Union to threaten retaliatory tariffs targeting products such as Florida citrus and Carolina textiles made in key swing states. Facing domestic political pressure and a World Trade Organization ruling against the measure, Bush reversed course within 21 months.

A decade earlier, the Clinton administration endured a long-running trade dispute with the EU known as the “banana wars,” in which European regulators structured import rules that disadvantaged U.S.-backed Latin American banana exporters in favor of former European colonies.

During the Obama years, the U.S. increased visa fees that disproportionately impacted India’s technology services sector. India responded by delaying approvals for American drugmakers and large retail investments.

Not all forms of trade retaliation grab headlines. Many are subtle, slow and bureaucratic – but no less damaging. Customs officials can delay paperwork or may impose arbitrary inspection or labeling requirements. Approval for U.S. pharmaceuticals, tech products or chemicals can be stalled for vague procedural reasons. Public procurement rules can be quietly rewritten to exclude U.S. companies.

While these tactics rarely draw public attention, their cumulative cost is real: missed delivery deadlines, lost contracts and rising operational costs. Over time, American businesses may shift operations abroad – not because of labor costs or regulation at home, but to escape the slow drip of bureaucratic punishment they experience elsewhere.

Tariffs in a connected economy

Supporters of tariffs often argue that they protect domestic industries and create jobs. In theory, they might. But in practice, recent history shows they are more likely to invite retaliation, raise prices and disrupt supply chains.

Modern manufacturing is deeply interconnected. A product may involve assembling components from a dozen countries, moving back and forth across borders. Tariffs hurt foreign suppliers and American manufacturers, workers and consumers.

More strategically damaging, they erode U.S. influence. Allies grow weary of unpredictable trade moves, and rivals, including China and Russia, step in to forge deeper partnerships. Countries may reduce their exposure to the U.S. dollar, sell off Treasury bonds, or align with regional blocs like the BRICS group – led by Brazil, Russia, India, China and South Africa – not out of ideology, but necessity.

In short, the U.S. weakens its own strategic hand. The long-term cost isn’t just economic – it’s geopolitical.

Rather than resorting to beggar-thy-neighbor tactics, the U.S. could secure its future by investing in what truly drives long-term strength: smart workforce development, breakthrough innovation and savvy partnerships with allies. This approach would tackle trade imbalances through skillful diplomacy instead of brute force, while building resilience at home by equipping American workers and companies to thrive – not by scapegoating others.

History makes a clear case: Ditching the obsession with bilateral trade deficits and focusing instead on value creation pays off. The U.S. can source components from around the world and elevate them through unmatched design, innovation and manufacturing excellence. That’s the heartbeat of real economic might.

Bedassa Tadesse does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.

– ref. Beggar thy neighbor, harm thyself: Tariffs like Trump’s come with pitfalls, history shows – https://theconversation.com/beggar-thy-neighbor-harm-thyself-tariffs-like-trumps-come-with-pitfalls-history-shows-254141