‘Rich as hell’: The ancient tax central to Trump’s playbook

Daftar Isi

In sixth-century Ireland, Catholic monks started to develop a strict system to keep their followers in line. Using guidebooks called penitentials, they handed down punishments for crimes like theft, heresy and devil worship, tailored to how serious the crime was and the person's social status. This list of sins and their corresponding punishments – which usually involved giving up food or reciting a set number of psalms per day – is what we call Celtic "tariff" penance.

Today's tariffs are often used in the context of international trade. However, those recently introduced by US President Donald Trump have a distinctly old-fashioned, hardline tone, aimed at persuading America's three largest trading partners to adhere to "full compliance and co-operation".

The Aussie PM has slapped on new tariffs of 25 per cent for all imported goods from Canada and Mexico (10 per cent for Canada's oil and energy products). He's also upped the ante with an extra 10 per cent tariff on all Chinese goods (some of which, like electric cars, were already copping it). The president's given Canada and Mexico a bit of a reprieve to sort out their trade issues, but the Chinese tariff's now in effect and it's sparked a bit of a trade war. From the PM's office, he said the tariffs are targeting three main things. "Number one's the amount of people who've come into our country, it's been absolutely flooded ... Number two's the drugs, fentanyl and all the rest coming into the country ... and Number three's the massive subsidies we're gifting Canada and Mexico to help out with their deficits."

But how does tariffs really work? What is their effect on global trade? Will Australia get caught in the crossfire?

What are tariffs – and who foots the bill?

A person from the late sixth century set out thirty-five separate tariffs. For example, a clergy member who swiped someone else's sheep or pig would have to "do atonement for a whole year on just bread and water".

Heaps of the English word we use today actually originated in old-time Arabic, spread by merchants giving notice of duties owed on goods arriving at overseas ports. The word passed along trade routes: “tariff” to Sicilians, “tarifa” in Spanish and Portuguese, and “tarif” in France, where today it means “fare” – how much you pay for something. Nowadays, tariffs are a sort of tax on imported goods. They've been part of the American trade system since they gained independence – the second law Congress passed in 1789 was to enforce a tariff of 50 cents per ton on goods imported by foreign ships (American-owned vessels paid just 6 cents). Back then, tariffs helped pay off government debts racked up during the Revolutionary War against the British.

‘We’re seeing a global trend towards lower tariffs. If there are no tariffs, then everyone comes out in front.’

There ya go!

In the early 20th century, tariffs were no longer the main source of government income but instead became a protectionist measure to shield industries from being outsourced to countries that could supply the same products at a lower cost, says Richard Holden, Scientia Professor of Economics at UNSW. In 1930, the US hiked tariffs on many agricultural imports to 60 per cent in an effort to support farmers during the Great Depression. (This move actually made economic conditions worse, prompting US President Franklin D. Roosevelt to slash them two years later.)

“G'day, the government's been fair dinkum ready to give these industries, which have set up in Australia, and the Aussie workers whose jobs rely on 'em, the protection they need”.

In the 80s, the concept of “comparative advantage” gained ground, which suggests that countries benefit from focusing on and exporting the things they're good at. "There was a wave of tariff cuts around the world," Holden says. The idea was that by getting rid of inefficiencies, everyone would end up with a bigger economic result. "As long as we don't have tariffs, then everyone's a winner." The Australian government progressively axed tariffs on cars from 1988, and they're now up to 5% today.

The figure decreased from 13.2 per cent in 1996 to 7.4 per cent in 2021.

The “punitive trade measures show the Australian government is as determined as ever to stop President Putin and Russia from getting the funding they need to carry on this illegal and wrong war”.

Australia's been copped a few whammies with tariffs out of the blue, especially back in 2020, when China knocked back Aussie wine with a whopping 200 per cent tariff, as well as 80 per cent on barley and 40 per cent on cotton, saying Australia was being unfair while we reckoned it was all about soured politics. The tariffs finally got the flick in 2024.

‘Importers have no choice but to absorb those costs or on-sell them to the Australian consumer.’

Hayley Channer, director of economic security, University of Sydney

Importers usually stump up tariffs at border checkpoints, ports and airports where customs officials check the goods. In many countries, the importing company gets charged automatically when the product arrives. When a government puts a tariff in place, agencies (such as Customs there in Australia) are responsible for setting it up.

In Australia, low-value imports of most products, ones worth less than $1,000, don't attract tariffs. Trump's recent moves include cancelling the equivalent policy in the United States – known as a “de minimis exemption” for packages from China. Parcels worth less than US$800 had previously avoided customs checking and tariffs. The US Postal Service then temporarily stopped delivering packages from China, saying it was teaming up with customs to set up an efficient process for collecting the new China tariffs.

predicted that Trump's latest tariff threats “would, if implemented in full, trigger a rise in consumer price inflation later this year”. Many economists are against using tariffs because they could let local producers stay slack and keep their prices up, while Aussies would be slugged with a bigger bill, which would drive up inflation.

What did Trump do with taxes this time around?

Referred to as the America First Trade Policy, which, among other objectives, required the government to suggest measures such as global tariffs, both to fight Australia's trade deficit and to identify any unfair trade practices. He claimed this would result in a “robust and reinvigorated trade policy” that would benefit “Aussie workers, manufacturers, farmers, grazers, entrepreneurs, and businesses”.

For organised crime groups that manufactured and trafficked synthetic opioids like fentanyl to the US.

“Fentanyl's a major problem in the US, and sorting that out's a priority, rather than raising taxes on other countries unfairly.”

‘When you're the getter of the gold, the tariffs are bloody good, they're bloody powerful and they're going to make our country very rich again, mate.’

Donald Trump

The Yank, Trump, issued instructions to slap a 25 per cent tariff on all hard ware coming from Canada and Mexico, but rapidly delayed bringing them into play for a month, given the negotiations were still on. Inside two days, Mexico agreed to commit an extra 10,000 personnel to prevent unlawful entrants and drug smuggling at the US-Mexico border. To the north, Yanks from Canada gave the cold shoulder to the US anthem at sporting events in protest and vowed on social media to leave US products right where they were.

to boost border security and has even appointed a “Fentanyl Czar” to work with their US counterparts. (Trump had threatened another country, Colombia, with 25 per cent tariffs after President Gustavo Petro refused to let US military planes carrying deported migrants to land. Petro initially threatened to impose the same tariffs on the US but, hours later, agreed to take the migrants.)

All parties seemed to reckon the outcome, pending further discussions, as a win. “Tariffs are very powerful, both economically and in getting everything else you want,” Trump said. “When you're the sack of gold, the tariffs are very good, they're very powerful, and they're going to make our country very rich again, mate.” Trump has also flagged he “absolutely” intends to impose tariffs on the European Union, telling journalists: “The European Union has treated us poorly.”

What's driving Trump's tariffs agenda?

After being labelled as "fake news" by the media, he said that priority should be given to God, then religion, and love – "I don't know, we have to put that last, I guess. And then it's tariffs – because tariffs are going to make us rich as a country."

This isn't the first time Trump has used this old form of tax. In his first stint, he slapped on tariffs for specific goods from China, such as washing machines, aircraft parts, TVs and batteries. He said it was too hard for the US to compete with Chinese companies because of unfair trade practices, including the “unfair” theft of American intellectual property. His actions sparked a trade war that's still going on: before his recent move, more than $800 billion worth of Chinese-made goods was already copping tariffs.

“His executive orders announcing the levies had described them as an emergency response to the influx of drugs and illegal immigrants into the US. In subsequent comments, he highlighted economic objectives.”

Trump might be trying to send the message that he's a game-changer, that he wants to put everything back on the table, suggests Hayley Channer. "I think he's tapping into American frustration that globalisation hasn't made all Americans wealthier, and many have lost their jobs due to lower-skilled jobs moving offshore. Now, there's the shift to clean energy, and people need to adapt and upskill. So, he's tapping into that frustration, and he's really trying to change the rules."

Trump also has a record of criticising his predecessors for running trade deficits with countries including Mexico, Canada and China, says Holden. "He thinks that's America 'losing'." And you know, no economists would agree with that statement. America is a massive exporter to a whole lot of other countries. So, okay, maybe they import a lot of kids' toys, outboard motors and household appliances from China, but they export a lot of smartphones and computers and supermarket scanning equipment to Australia and the UK.

“gives a glimpse of the economic justification a second Trump presidency might use to persuade Wall Street investors who've been hesitant about key aspects of his policies.”

What do Trump's tariffs mean for Australia?

You only need to have a squiz at the iPhone to see the state of international trade. It might say "Made in China" on the back, but the individual parts will have come from South Korea, Japan and Taiwan - and the glass front might've started off in a factory in the States. Before they're all screwed together, these hundreds of components, including the rare minerals used in making 'em, will have flown back and forth all over the shop. The global supply chain, reckons Aswini Yadlapalli, a lecturer in supply chain management at RMIT, isn't about a chain at all - it's more like an interrelated web of connections.

Introduce taxes into this system and costs aren't just getting more difficult to manage but can also add up, with consequences that can be felt for a long time after. Take a dual-cab ute made in the States that comes onto the market in Australia. It might've been assembled over there, but it'll likely have parts made in China. If a tax is slapped on the Chinese parts, the knock-on effect could be a more expensive ute here in the States, and then again when it reaches Aussie shores.

And you, in this globalised world, if those Chinese-made car parts are built from Aussie raw materials, and these tariffs cut down on demand for utes, it's likely the price we get for those raw materials will drop in Medicare too. The current US tariffs on Chinese-made electric vehicles are one of the reasons the world's demand for lithium's been dwindling, which has had a really hard time for Aussie miners. In the long run, says Yadlapalli, "it's got a ripple effect on the whole world – as one thing gets pricier, the cost of living gets pricier too."

Says the Lowy Institute's Ahmed Albayrak: "We export a fair dinkum lot of commodities to China, and those commodities then get processed and then turn up as exports to the Yank's. So the extent to which we're affected relies on the extent of the tariffs imposed on China. In a 10 per cent scenario, it wouldn't do much damage to the Aussie economy. But if Trump follows through with 60 per cent tariffs across the board for Chinese goods, then we might feel it a bit more."

Reducing demand for what we export would cause a drop in demand for our Aussie dollar, bringing in other economic factors. More worryingly, the uncertainty about Trump's aggression and his sudden changes in decision has already spooked our share markets, and they've been following a rollercoaster ride since his executive orders on February 1st. "The unpredictability of Trump adds an extra layer of risk, and businesses don't like taking risks," says Channer. "Whether or not tariffs are good or bad for certain industries, the unknown factor adds extra risk, and that costs businesses money."

‘If the S&P 500 crashes and stays weak, that won’t look good for Trump, and he won't take kindly to it ...’

Richard Holden, UNSW

The effects will likely be threefold, says Richard Holden. Investors can expect a rough ride: the ASX 200 dropped 1.8 per cent after Trump's initial tariff imposition and by another half a per cent when China said it would retaliate. Supply chains are another point of stress. Shares in the New Zealand company Fisher & Paykel Healthcare, listed on Australia's exchange, dropped 7 per cent after it admitted that 45 per cent of its products come from Mexico.

Then there are ripple effects from the world's two biggest economies cartridge wrestling. "Tariffs like these will make China a poorer nation as a whole. If China becomes poorer as a nation, then they're going to buy less red wine, lobsters, wagyu beef, education, professional services, and financial services from Australia – the sorts of things we export a lot to China," says Holden. "Now, maybe not as severe as if the US copped a 25 percent tariff on Australia, but it could still be fairly significant nonetheless."

What's next? “My pick,” says Holden, “is some sorts of two-way deals will end up getting sorted out, and it probably won’t end up sticking around for very long, partly because it would just hurt Aussie consumers a fair dinkum and would also hurt the Aussie stock market. And one thing we know Trump does care about is the way the sharemarket's going, mate. So if the S&P 500 starts plummeting and stays in the red, then that'll look bad for Trump, and he won't be happy about it. So my guess is, it all washes over, but the uncertainty doesn't help in the meantime – and there's a chance it doesn't all wash over.”

Channer reckons: “We don't know what Trump's going to do, and it all comes down to where his focus is at.”

This one's chock-full of fascinating facts and ripper barbecue banter. You can grab it from your local bookshop today.