It would pay these people to do a little research. In the early years of the United States tariffs were a cornerstone of economic strategy, particularly under the first US Secretary of the Treasury Alexander Hamilton. Hamilton advocated for tariffs to raise federal revenue and protect emerging American industries from foreign competition – just as China would 200 years later. His vision was articulated in the Report on Manufactures (1791) where he argued that tariffs and subsidies were essential to fostering domestic manufacturing and achieving economic independence. The Tariff Act of 1789 became one of the first legislative actions towards this.5, 6
* This strategy worked and, throughout the 19th and early 20th centuries, tariffs remained central to US trade policy.
Just like now, there was controversy, despite the claims by current media that this is ‘a new and unknown thing’.7, 8
Debates occurred between protectionists and advocates for free trade – as ‘free trade theory’ developed – to the extent that, after World War II, the United States began to shift towards trade liberalisation. The creation of the General Agreement on Tariffs and Trade (GATT) in 1947 marked a turning point, laying the foundation for international cooperation in reducing trade barriers.9
* Over subsequent decades, US tariffs were significantly reduced, particularly as the country became a leading proponent of free trade agreements and a member of the World Trade Organisation (WTO) in 1995.10
US trade tariffs became less common as the US engaged in global trade negotiations, balancing protection of domestic interests with commitments to international trade agreements. However, by 1970 cracks began to appear, in part because of currency changes: e.g., the US became the default global currency and many countries wanted US dollars and the way to get them was to sell products, (cheaply and often through subsidised production) into the US market – providing these countries with US foreign exchange dollars and, by imposing tariffs on US goods into the country, retain these foreign currency advantages. This change, combined with increased domestic consumption of imported goods and a consequent decline in US manufacturing employment, contributed to persistent US trade deficits.
Then, things got worse. The establishment of the World Trade Organisation (WTO) in 1995 marked a turning point in global trade policies, aiming to promote even more free trade and further reduce trade barriers.10
The United States embraced the WTO framework: it significantly reduced tariffs and pursued free trade agreements to integrate into the global economy. These measures made imported goods cheaper, increased domestic consumption of foreign products and shifted the economic focus toward technology and services – often at the expense of the US manufacturing sector, particularly in the Midwest, which, as outlined in JD Vance’s Hillbilly Elegy, was gutted.11 This structural adjustment led to job losses, greater reliance on imports and also contributed to the persistent US trade deficit.
In contrast, China and several other countries implemented WTO guidelines selectively. High tariffs on US exports made American goods less competitive and dampened demand in those markets. Simultaneously, these countries subsidised their domestic industries – such as steel, automotives and home appliances – providing an artificial advantage in global trade by allowing them to undercut US manufacturers and flood the American market with cheaper goods.12
Critics of Trump’s tariff strategy often overlook that it was these long-standing distortions – foreign tariffs and subsidies – that created an uneven playing field, not the tariffs themselves.
* While the US generally adhered to free trade principles, protectionist policies by China and others undermined the intended reciprocity. And in his presentation of the TTS – Trump specifically simply asked for “reciprocity”.
In conclusion, the combination of US tariff reductions, broad adoption of free trade policies and other countries’ persistent use of protectionist measures has played a central role in shaping the US current trade deficit.13
* Misrepresenting this history is deeply misleading – especially when these tariff responses were only introduced in the past few days – given that the underlying imbalance has been building since 1947 and worsening since 1995 through the uneven application of WTO policies.
Here is the potential ‘looming disaster’ – and it’s what mainstream media in their hysteria are missing because they would rather ‘score points’ against Trump:
* what happens if the US debt balloon, currently around 122 per cent of GDP and standing at approximately $36.2 trillion,14 surges to 150 per cent or approximately $40 trillion?
The repercussions would likely ripple through global trade with devastating effects. A debt-to-GDP ratio of this magnitude would:
* strain the US Government’s ability to manage its obligations, leading to soaring interest payments that could divert funding from critical public and international services
* investor confidence could falter, prompting even higher borrowing costs and further risking (global) financial instability
* the US dollar, as the global reserve currency, could face devaluation pressures, further shaking international markets
A depression would be almost guaranteed as the US economy, constituting 26.5 per cent of the global GDP,15 plays a pivotal role in international trade and investment
* A spiralling debt crisis in the US would slow economic growth worldwide, disrupt trade relationships and undermine the stability of the global financial system.
All this would make the ‘global financial crash of 2008’ look like a ‘walk in the park’ (ironically, many of the commentators16, 17 on TTS were involved or architects of that crash).
At the current rate of debt growth, which has been averaging around six per cent annually, with the US still running trade deficits, the US could reach $40 trillion in approximately two to three years.18
This timeline underscores the urgency of addressing the nation’s fiscal trajectory. We cannot afford to NOT come to the negotiation table…As things stand, today, over 70 countries19 have come to the US trade negotiation table, so there is hope for TTS.
References
1. https://truthout.org/articles/trumps-tariffs-are-a-ploy-to-further-consolidate-power-says-sen-chris-murphy/
2. https://euroweeklynews.com/2025/04/07/markets-tumble-as-trumps-tariff-threats-shake-global-confidence/
3. https://www.msn.com/en-us/money/markets/trump-officials-struggle-to-explain-tariff-strategy-but-claim-americans-won-t-feel-big-effect/ar-AA1CoC4x
4. https://www.msn.com/en-in/money/topstories/as-stock-markets-tank-and-the-global-economy-heads-toward-recession-following-donald-trumps-tariffs-heres-how-the-crisis-could-be-resolved/ar-AA1Csvit
5. https://en.wikipedia.org/wiki/Report_on_Manufactures
6. https://en.wikipedia.org/wiki/Tariff_of_1789
7. https://www.nbcnews.com/politics/trump-administration/live-blog/trump-netanyahu-tariffs-live-updates-rcna199871
8. https://www.cnbc.com/2025/04/03/trump-tariffs-live-updates-stock-market-trade-war.html
9. https://legal.un.org/avl/ha/gatt/gatt.html
10. https://en.wikipedia.org/wiki/History_of_tariffs_in_the_United_States
11. https://en.wikipedia.org/wiki/Hillbilly_Elegy
12. https://www.worldbank.org/en/topic/trade/brief/subsidies-and-trade
13. https://www.worldbank.org/en/news/feature/2023/08/29/protectionism-is-failing-to-achieve-its-goals-and-threatens-the-future-of-critical-industries
14. https://tradingeconomics.com/united-states/government-debt-to-gdp
15. https://www.theglobaleconomy.com/rankings/gdp_share/
16. https://www.abc.net.au/news/2025-04-07/gfc-vibes-abound-as-trump-tariffs-risk-economic-armageddon/105147434
17. https://www.nbcnews.com/business/business-news/trump-tariffs-business-leaders-criticize-trump-admin-trade-war-rcna199997
18. https://fred.stlouisfed.org/series/GFDEBTN/
19. https://www.foxbusiness.com/economy/scott-bessent-says-up-70-nations-want-negotiate-over-trumps-tariffs
Dr Michael John Schmidt left NZ after completing postgraduate studies at Otago University (BSc, MSc) in molecular biology, virology, and immunology to work in research on human genetics in Australia. Returning to NZ has worked in business development for biotech and pharmacy retail companies and became a member of the NZ Institute of Directors. This article was first published HERE
* This strategy worked and, throughout the 19th and early 20th centuries, tariffs remained central to US trade policy.
Just like now, there was controversy, despite the claims by current media that this is ‘a new and unknown thing’.7, 8
Debates occurred between protectionists and advocates for free trade – as ‘free trade theory’ developed – to the extent that, after World War II, the United States began to shift towards trade liberalisation. The creation of the General Agreement on Tariffs and Trade (GATT) in 1947 marked a turning point, laying the foundation for international cooperation in reducing trade barriers.9
* Over subsequent decades, US tariffs were significantly reduced, particularly as the country became a leading proponent of free trade agreements and a member of the World Trade Organisation (WTO) in 1995.10
US trade tariffs became less common as the US engaged in global trade negotiations, balancing protection of domestic interests with commitments to international trade agreements. However, by 1970 cracks began to appear, in part because of currency changes: e.g., the US became the default global currency and many countries wanted US dollars and the way to get them was to sell products, (cheaply and often through subsidised production) into the US market – providing these countries with US foreign exchange dollars and, by imposing tariffs on US goods into the country, retain these foreign currency advantages. This change, combined with increased domestic consumption of imported goods and a consequent decline in US manufacturing employment, contributed to persistent US trade deficits.
Then, things got worse. The establishment of the World Trade Organisation (WTO) in 1995 marked a turning point in global trade policies, aiming to promote even more free trade and further reduce trade barriers.10
The United States embraced the WTO framework: it significantly reduced tariffs and pursued free trade agreements to integrate into the global economy. These measures made imported goods cheaper, increased domestic consumption of foreign products and shifted the economic focus toward technology and services – often at the expense of the US manufacturing sector, particularly in the Midwest, which, as outlined in JD Vance’s Hillbilly Elegy, was gutted.11 This structural adjustment led to job losses, greater reliance on imports and also contributed to the persistent US trade deficit.
In contrast, China and several other countries implemented WTO guidelines selectively. High tariffs on US exports made American goods less competitive and dampened demand in those markets. Simultaneously, these countries subsidised their domestic industries – such as steel, automotives and home appliances – providing an artificial advantage in global trade by allowing them to undercut US manufacturers and flood the American market with cheaper goods.12
Critics of Trump’s tariff strategy often overlook that it was these long-standing distortions – foreign tariffs and subsidies – that created an uneven playing field, not the tariffs themselves.
* While the US generally adhered to free trade principles, protectionist policies by China and others undermined the intended reciprocity. And in his presentation of the TTS – Trump specifically simply asked for “reciprocity”.
In conclusion, the combination of US tariff reductions, broad adoption of free trade policies and other countries’ persistent use of protectionist measures has played a central role in shaping the US current trade deficit.13
* Misrepresenting this history is deeply misleading – especially when these tariff responses were only introduced in the past few days – given that the underlying imbalance has been building since 1947 and worsening since 1995 through the uneven application of WTO policies.
Here is the potential ‘looming disaster’ – and it’s what mainstream media in their hysteria are missing because they would rather ‘score points’ against Trump:
* what happens if the US debt balloon, currently around 122 per cent of GDP and standing at approximately $36.2 trillion,14 surges to 150 per cent or approximately $40 trillion?
The repercussions would likely ripple through global trade with devastating effects. A debt-to-GDP ratio of this magnitude would:
* strain the US Government’s ability to manage its obligations, leading to soaring interest payments that could divert funding from critical public and international services
* investor confidence could falter, prompting even higher borrowing costs and further risking (global) financial instability
* the US dollar, as the global reserve currency, could face devaluation pressures, further shaking international markets
A depression would be almost guaranteed as the US economy, constituting 26.5 per cent of the global GDP,15 plays a pivotal role in international trade and investment
* A spiralling debt crisis in the US would slow economic growth worldwide, disrupt trade relationships and undermine the stability of the global financial system.
All this would make the ‘global financial crash of 2008’ look like a ‘walk in the park’ (ironically, many of the commentators16, 17 on TTS were involved or architects of that crash).
At the current rate of debt growth, which has been averaging around six per cent annually, with the US still running trade deficits, the US could reach $40 trillion in approximately two to three years.18
This timeline underscores the urgency of addressing the nation’s fiscal trajectory. We cannot afford to NOT come to the negotiation table…As things stand, today, over 70 countries19 have come to the US trade negotiation table, so there is hope for TTS.
References
1. https://truthout.org/articles/trumps-tariffs-are-a-ploy-to-further-consolidate-power-says-sen-chris-murphy/
2. https://euroweeklynews.com/2025/04/07/markets-tumble-as-trumps-tariff-threats-shake-global-confidence/
3. https://www.msn.com/en-us/money/markets/trump-officials-struggle-to-explain-tariff-strategy-but-claim-americans-won-t-feel-big-effect/ar-AA1CoC4x
4. https://www.msn.com/en-in/money/topstories/as-stock-markets-tank-and-the-global-economy-heads-toward-recession-following-donald-trumps-tariffs-heres-how-the-crisis-could-be-resolved/ar-AA1Csvit
5. https://en.wikipedia.org/wiki/Report_on_Manufactures
6. https://en.wikipedia.org/wiki/Tariff_of_1789
7. https://www.nbcnews.com/politics/trump-administration/live-blog/trump-netanyahu-tariffs-live-updates-rcna199871
8. https://www.cnbc.com/2025/04/03/trump-tariffs-live-updates-stock-market-trade-war.html
9. https://legal.un.org/avl/ha/gatt/gatt.html
10. https://en.wikipedia.org/wiki/History_of_tariffs_in_the_United_States
11. https://en.wikipedia.org/wiki/Hillbilly_Elegy
12. https://www.worldbank.org/en/topic/trade/brief/subsidies-and-trade
13. https://www.worldbank.org/en/news/feature/2023/08/29/protectionism-is-failing-to-achieve-its-goals-and-threatens-the-future-of-critical-industries
14. https://tradingeconomics.com/united-states/government-debt-to-gdp
15. https://www.theglobaleconomy.com/rankings/gdp_share/
16. https://www.abc.net.au/news/2025-04-07/gfc-vibes-abound-as-trump-tariffs-risk-economic-armageddon/105147434
17. https://www.nbcnews.com/business/business-news/trump-tariffs-business-leaders-criticize-trump-admin-trade-war-rcna199997
18. https://fred.stlouisfed.org/series/GFDEBTN/
19. https://www.foxbusiness.com/economy/scott-bessent-says-up-70-nations-want-negotiate-over-trumps-tariffs
Dr Michael John Schmidt left NZ after completing postgraduate studies at Otago University (BSc, MSc) in molecular biology, virology, and immunology to work in research on human genetics in Australia. Returning to NZ has worked in business development for biotech and pharmacy retail companies and became a member of the NZ Institute of Directors. This article was first published HERE
7 comments:
A succinct and sane summary. A refreshing change from the usual lemming like language from mainstream economists.
This excellent piece should be compulsory reading for everyone, including all the “headless chooks” masquerading as qualified economic commentators.
We should be greatful to Dr Schmidt for providing a commentary that is based on a true interpretation of history - not just a false opinion rattling around in the echo chamber of political discourse.
But its greatest strength is that it is written in a language fit for dummies like me and the average punter who stand to gain more from a successful end to this current economic battle of the Titans.
Thankyou Michael.
This seems like an authoritative representation of trade history and the artificial measures to frustrate it. But is it relevant to the world today, in the third decade of the 21st century.
This seems to have been composed before Trump’s monumental backdown with a suspension of his tariffs for 90 days, except China, where has increased them. So, if his massive introduction of global tariffs (with the exception of Russia and North Korea - go figure that one out), was justified, then why the 90-day suspension. Then what? A reimposing of them? Or an abandonment, or partially so, of them. So, this global disruption would have been all for nothing.
As the writer points out, following WW2 global trade was freed up, and in the establishment of the WTO in 1995 further accelerated it. Look at the result of this. Hundreds of millions of people, especially in Asia, and also Eastern Europe, and elsewhere, like the Middle East, have been lifted out of poverty. But also, developed countries have measurably benefitted. Take as just one example the vehicle fleet in this country, and compare it to that of 30 or 40 years ago. Even Australia has dropped the manufacture of cars, relying, like us, on imports from a range of countries. Clearly the standard of living of the developed nations has also been lifted by free, or freer, trade.
Another aspect of trade is the interdependence of worlds nations. Is this a factor in the absence of catastrophic wars like those of the first half of the 20th Century. What would a war between the world powers and China do to the prosperity of those countries people, especially China, which is now the world’s greatest trading nation. It’s hard to believe that the Chinese leaders are not mindful of that.
The reaction to the tarrifs looks like quite a few self-styled authorities are setting themselves up for a dollop of humble pie when the dust settles.
Kiwis should remember the advice given by the former PM David Lange when faced with the “headless chooks” and their wild predictions while his Finance Minister, Roger Douglas was successfully saving us from ourselves.
Lange suggested we should all sit down and have a Cuppa - waiting for these dramatic necessary measures to take effect.
It would seem sensible to heed his advice during this current period of uncertainty and leave it all to wiser heads who are better equipped to determine the outcome.
I am at a complete loss to understand what Lange's cup of tea has got to do with this. I also think that to analogize those who make known their concern of Trump's on-again-off-again tariff fiasco with headless chook is insulting. 'Wiser heads'? Who, for instance? There appears to be few in this Trump administration.
Well if you can’t understand what l write, why not read Muriel’s piece at the top of today’s contributions.
You may think her version of the truth is more acceptable.
Can’t please them all
It would appear that l’m not the only one who reckons we should all wait until the dust settles before making rash decisions - l note Winston Peters has the same advice for his boss.
Let’s hope Luxon is intelligent enough to accept his wingman’s wise counsel.
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