“LET’S fasten our seatbelts, because we’re in for a real bumpy ride.”

That was the ominous forewarning issued by respected US economist and former US trade negotiator Stephen Olson during an address to this week’s AMIC Meat Processing and Export Conference on the Gold Coast.

Stephen Olson addresses the AMIC conference

Mr Olson, who began his career in Washington DC as a US international trade negotiator and now sits as a senior adjunct fellow at the Pacific Forum, painted an alarming picture of the new, significantly more chaotic landscape for global trade that’s unfolding this past week.

“The volume and pace of the trade actions that’s been seen since March has been exhausting and dizzying, but in situations like this we sometimes make the mistake of missing the forest for the trees,” he told conference delegates.

“But in my judgement at least, that ‘forest’ is presently burning down – and we need to understand that.”

“Trump has not yet been in office for even 100 days, but he has ‘flooded the zone’ with on-again, off-again trade actions, against neighbours Mexico and Canada, plus multiple rounds of tariff actions against China and others.

“The threats are literally too numerous for us to walk through,” Mr Olson said, “but the big one, that we’re all still reeling from, is last week’s reciprocal tariffs announcement, and what’s happened since then.”

US tariffs in China have now ratcheted up to 125pc as of this morning.

“The question, for all of us today, is where is this going? How do things break, from here?” Mr Olson said.

There were probably two or three ways that things could break, he said. Unfortunately, none of them were ‘good’ outcomes.

“Firstly, we could see countries taking counter-measures against the Trump tariffs. China has already done so, and Canada and the EU have indicated they will do the same. I expect others will follow.

“I’m not in the business of predicting Donald Trump’s moves, but if there’s one thing we can be certain of, its that Trump will punch back. He’s already done that with China.

“Once we start heading down this road of tit-for-tat retaliation, literally, we do not know where it will end. But if the market reactions seen thus far are any indication, its highly plausible that the results of this trade war could be as severe – if not more severe – than the last global trade war in the 1930s.”

More like ‘Organised Crime’ than orderly trade

Another approach that some countries were taking is ‘Let’s get in there are cut a deal with Trump’ to get out from under the tariffs, Mr Olson said.

“Let’s be honest: referring to these as ‘negotiations’ is a misnomer, because it’s not about give-and-take, it’s about offering Trump concessions,” Mr Olson said. “It’s a one-way street.”

If that happened, it would mean Trump has effectively transformed an orderly rules-based global trade system into something akin to an ‘organised crime protection racket.’

“In both cases, the principle is the same: You must pay, in order to avoid pain. In an organised crime scenario, shopkeepers pay money to mobsters to avoid having their stores burnt to the ground. In Trump’s new trade world, you offer Trump concessions in order to get out from under draconian tariffs.”

The problem with this was, it doesn’t work, Mr Olson said, because in either case, the price will inevitably go up.

The third approach (evidently being taken by Australia), was “You know what? Let’s just keep our heads down.”

“We don’t like the 10pc tariffs, but let’s just try and ride out the storm, some countries are saying. Maybe it won’t be too disruptive for us.”

But there was a couple of issues around this strategy that needed to be understood, Mr Olson said.

“Just because it’s 10pc today, do not assume it will be 10pc tomorrow, next week or next month. This is Donald Trump, and the Executive Orders he holds specifically provide him with authority to continue to ratchet up those tariffs.

“Maybe you can survive 10pc tariffs, but in six months time, they might be 30-40pc.”

“The other point with option three is that your competitors might be cutting deals with the US, leaving you at a competitive disadvantage. According to the US Secretary of Congress, 50 countries have already approached the Trump administration.”

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So what does all this mean?

“The orderly, rules-based global trade system that’s been in place since the end of the second world war, has basically collapsed,” Mr Olson said.

“It’s fair to say that before Trump, the system was already wobbly, but Trump’s latest actions will be the knockout punch.”

“No system is perfect, but undeniably the rules-based global trade system has been a primary driver of economic growth and prosperity throughout the world – and especially the Asia-Pacific, including here in Australia. We’re going to miss it when its gone.”

Pivot point to ‘law of the jungle’

“We’re now at an historical pivot-point, transitioning from that old orderly global trade system to a new world of trade that’s far more chaotic. Instead of rules, its going to be much closer to ‘law of the jungle’, where the big fish eat the little fish.”

“All of you (Australian red meat processors and exporters attending the AMIC conference) are going to have to navigate your companies across this difficult transition – and its important to understand some of the specifics of what we’re transitioning between.”

In the old world of trade since WWII, there was a broad global consensus (including in the US) on the benefits of free trade. But at times in the real world, it gets messy.

The second point in the transition being made was that for eight decades, the trendlines were clear: a steady  reduction in tariff and non-tariff barriers. Today, the world is moving into an era of protectionism, trade wars, and increasing tariff and non-tariff barriers.

“In the old world, there was incredible faith in free trade outcomes. As trade negotiators, we thought our job was to reduce the barriers and restriction, then let the free market take over. Wherever you ended up, after that, was an optimum outcome,” Mr Olson said.

“Now in this new world order, there’s more of a recognition that maybe there are instances where a little more government intervention is appropriate. Faith in free-market outcomes is being mitigated by more industrial policy, more subsidies and a higher comfort level with government intervention.”

“In the old world of trade, countries were willing to follow the letter and the spirit of trade rules. Now we have countries more willing to skirt around trade rules, or in the case of Trump, proudly and belligerently break trade rules.

“In the past, there was a spirit of trust and cooperation, which started after WWII when people said, let’s put the world back together. Today, a completely different world – trust is completely blown away, and in it’s place is a ‘What’s in it for me?’ approach.”

Strategising the Trump impact

Mr Olson said some people saw Trump’s moves as being all about Trump wanting to force countries to negotiate.

“Trump certainly likes the leverage this gives him. He’s always open for a deal, and if he can extract exorbitant concessions, I think he would be open to making deals. But please understand, his protectionism is hard-wired into his DNA – this is who the man is – he fervently believes that nefarious foreigners are intent on ripping off the US.”

From a corporate exporter planning perspective, Mr Olson said the current events were not simply likely to ‘settle down.’

“This is not a short-term storm that we have to ride-out. In fact I think it could be just the beginning,” he said.

“A lot of countries in that bottom-tier 10pc tariff categories could find themselves moved up. That’s because from Trump’s perspective, chaos is the point – it’s not an unfortunate by-product, it’s his desire. He firmly believes that if everyone else in the world is running around with their hair set on fire, it’s advantage Trump.”

The good, the bad, and the ugly for the beef industry

Despite the craziness coming out of Washington, Mr Olson made the point that at the end of the day, the US was only one customer country for Australia, and it’s a big world.

“Successive Australian governments have negotiated a wide network of Free Trade Agreements, many with fast growing countries and regions,” he said.

“You (Australian red meat exporters) have to take this as an opportunity for diversification. As you consider countries and regions, I’d encourage you to take a closer look at the Trans-Pacific Partnership (CPTTP).

“I think the relevance of this agreement is about to expand dramatically.

“Its already the highest quality agreement that we have, in my judgement, but I think as Trump blows up the global trade system, it is going to be more attractive for more countries around the world to seek membership – looking at it as a safe harbour, and a compact with other like-minded countries that want to follow the open trade route.”

For those countries that do decide to retaliate against Trump tariffs, this could open up opportunities in third-country markets.

“There are a lot of markets that compete with the US for market share – Japan, South Korea are examples. If either of those countries apply retaliatory tariffs on US agriculture, Australia has a real opportunity to capture beef market share from the US.

“However the flip-side of that is that if they cut deals with the US, and get out from under the reciprocal tariffs while Australia is still burdened, then that puts Australia at a competitive disadvantage.

“When countries craft retaliation packages against the US, agriculture is always going to be near the top of their list. Here’s the problem in that for Australia: the last time this happened, Trump responded quickly, by breaking out his chequebook, providing billions of dollars worth of subsidies for the US agriculture industries.

“If he does that again, Australian beef will be competing with US competitors who have a lot more government money in their pocket.”

In his final point, Mr Olson said global geo-political rivalry was now at its highest level since the end of the Cold War.

“To blow up the best example we have of countries working together for mutual benefit – the rules based global trade system – is really like playing with matches in a very, very dry forest,” he said.

“As you (exporters) navigate this terrain, you’re going to face a lot more geo-political complications that will have to be factored-in to corporate decision-making.”