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For the last month or so there have been concerns over the implications of US President Donald Trump placing tariffs on Australian steel and aluminium exports.
Broker Daily recently discussed how this uncertainty played into the Reserve Bank’s rate cut decision.
Now, Trump has made his mind up and placed a 25 per cent tariff on all US steel and aluminium imports, effective 12 March.
This is concerning for Australia as according to UNSW Business School’s Dr Scott French, around 15 per cent of Australian steel and aluminium exports go to the US.
UNSW said this decision has the power to have long-term effects on the Australian economy as higher consumer prices, disruptions to global supply chains, and geopolitical stability will likely be impacted.
“Due to the complexity of global supply chains, it’s hard to predict precisely where the impact will be greatest, but the overall effect is going to be negative,” Dr French said.
“In terms of exports, aluminium and steel are only a fraction of the size of Australian mining sector. So, if you’re looking at Australia as a whole, the direct effect on miners is smaller. But it’s a bigger overall sector, so when you multiply that out, it’s probably the bigger of the two impacts for Australia overall.”
These tariffs will also affect China, which in turn will flow on to Australia which is dependent on the nation for trade.
Dr French believes the tariffs will lead to an influx of foreign products to Australia, damaging local manufacturing.
“I can already feel the push for protective tariffs to keep out foreign products competing with domestic production. I’m very, very wary of something like that because I find that Australia has done well by having very low trade barriers. And we don’t want to go back to the experience from earlier decades where local manufacturing was very highly protected and very uncompetitive,” he said.
“So that’s why I think maintaining competitiveness is important, and I would strongly caution against trying to enact any sort of protective tariffs to isolate the domestic market for these products.”
Prime Minister Anthony Albanese addressed the US decision in a statement. There were hopes Albanese and Trump could come to an agreement of exemption, but clearly this did not come to fruition.
“The United States’ decision to impose tariffs on Australian steel and aluminium as part of a global decision is concerning. It has been foreshadowed that no country regardless of its relationship with the United States has been granted an exemption. Such a decision by the Trump administration is entirely unjustified,” Albanese said.
“This is against the spirit of our two nations’ enduring friendship and fundamentally at odds with the benefits our economic partnership has delivered over more than 70 years. Australia has no tariffs on goods from the United States.
“Our government will continue to put forward a very strong case for an exemption and to advocate for Australian trade with the United States at every level and through every channel.”
Australia is not proposing reciprocal tariffs at this stage, as some other nations have done, such as Canada and China.
With the federal budget expected to be handed down on 25 March, Albanese said there will be measures in place to protect Aussie companies through the Buy Australian campaign.
Dr French said there is an opportunity for Australia to build stronger trade connection with countries also impacted by Trump’s decision.
“Trade diversion works in both directions. That tariffs will increase foreign goods coming into Australia but also increase demand for Australian goods by countries that are putting retaliatory tariffs on US goods.
“Australia already has trade agreements with most of its Indo-Pacific trading partners. And so one thing you see is that when you get a tariff in one place, you have what you call trade diversion. So I would expect trade to pick up between Australia and these other countries automatically,” Dr French said.
“If China, say, retaliates on the US tariffs by increasing tariffs on US products, then that opens doors for Australian producers as the Chinese substitute away from the US products to others in the area.”
NAB CEO Andrew Irvine came forward to voice concern on the matter, saying “No one wins in a tariff war or a trade war.”
“While we don’t sell a lot to the US, we do sell a lot to countries that sell a lot to the US. We sell significant raw materials to China, we sell a lot to near Asian markets. All these trade patterns are going to get disrupted.
“The problem with a very aggressive tariff posture is that it creates inflation.”
However, Irvine believes Australia is well placed to deal with the consequences.
“We’ve diversified and we’re now better prepared with how we deal with finding new markets for our goods,” Irvine said.
“We’re in better shape to deal with this than we would otherwise have been.”
The coming months could prove to be a trying time for Australian businesses. Uncertainty creates tension and the impacts on the sector are yet to be seen.
With recent studies showing that a rise in insolvency risk has made business owners more cautious with borrowing, the commercial and asset finance broking space is likely to be impacted by the tariffs.
As is often talked about in Broker Daily’s Finance Specialist podcast, those who listen and learn the ins and outs of clients business can provide a better service and support positive business development.
Related: Businesses cautious in borrowing amid insolvency risk increases
