Think of tariffs as another Trump wall – to keep cheap goods out of the US

Pick up a stone, then drop it. What happens? It falls, obviously. That’s how the law of gravity works. The laws of economics are different. Whatever laws humans invent to explain how prices rise and fall with supply and demand, there is always a human factor that is difficult to predict and that human factor can change how we regard economic “laws”. US President Donald Trump is that human factor right now. It looks as if he thinks he can defy whatever economic laws may have existed for years, especially the idea that globalisation means an interconnected, more prosperous world of trade in which conflicts between nations are less likely because conflict is bad for business. That was the optimistic scenario that has guided most of the world for decades. It doesn’t look so optimistic now. But when the future is uncertain, history provides some guidance. In Europe, the 1840s were known as the “Hungry Forties” of failed harvests and poverty. A Scottish writer of that time, Thomas Carlyle, famously described economics as “the dismal science” for its pessimistic view of the world. Carlyle was reacting to economic predictions that the world’s population would always grow faster than our ability to produce food, condemning most humans to inescapable poverty. Thankfully, it hasn’t quite worked out like that. While hundreds of millions of us do live in poverty, from China and Vietnam to nations in Latin America, Africa and the Middle East have seen living standards rise for most citizens even if the global economic picture today looks dismal and uncertain. Will Mr Trump stick to the pain that he is causing not just in foreign countries but to Americans themselves? Will large demonstrations against tariffs in the US change the political landscape? Will Congress rebel against Mr Trump’s policies? And will basic economics force a rethink in Washington? Who can be sure. But on that last point, commentators point out that the tariffs Mr Trump has levied hit way beyond obvious economic competitors such as China, the EU and fast-growing economies like Vietnam. Tariffs have bizarrely even been levied on uninhabited islands where penguins live. The Heard and McDonald Islands are somewhere between Madagascar and Antarctica and have not been visited by humans in a decade. Now they too are hit by the Trump tariffs. All this raises the question of whether Mr Trump knows what he is doing. He wants to bring back manufacturing to the US. He believes jobs have been lost by unfair competition and carelessness in Washington about “free trade”. Yet there has been a lot of commentary on social media about whether it makes sense (for example) for the US to compete with Vietnam in making cheap items of clothing. That argument goes like this: if a Vietnamese worker can make a sweatshirt for $2 and the Trump tariffs increase that cost by around 50 per cent then the shirt still only costs $3 to manufacture in Vietnam. Making the same item in the US might cost $20. Would American consumers want to pay the difference? Perhaps, then, the simplest way of understanding what is going on is to see tariffs as just another Trump “wall”, an economic wall built to keep cheap goods out of the US and encourage self-sufficiency, by undermining the globalised world economy that has kept us interconnected for years. But do such “walls” really “work”? Mr Trump promised when launching his first presidential campaign in June 2015: “I would build a great wall, and nobody builds walls better than me, believe me, and I’ll build them very inexpensively. I will build a great, great wall on our southern border and I’ll have Mexico pay for that wall”. He did build parts of a wall, but Mexico didn’t pay for it. Migration experts pointed out to me that building that wall meant that seasonal workers from Mexico and elsewhere, who used to come to the US for a few months at harvest time and then go home to Mexico, chose to stay in the US rather than face difficulties at the border. The wall kept people in as much as it kept some out. Mr Trump is now summarily deporting migrants, but that is simply more proof the wall failed in the past. So will the tariff wall work any better? History suggests otherwise. Economists and their “dismal science” have many different views of what might happen next as the stock markets slide and market confidence diminishes. The truth is that no one – including perhaps Mr Trump himself – can accurately forecast whether economic laws will function as predictably as the laws of gravity. What we can predict, however, is that Mr Trump will change course only when American voters and workers, as well as investors, feel real pain from rising prices and falling financial markets. In other words, the great dislocation of world economies has only just begun.