Finance Finance News Trump’s tariffs: Why does Australia care so much?

Trump’s tariffs: Why does Australia care so much?

It's the flow-on effects that could really hurt Australia.
It's the flow-on effects that could really hurt Australia. Getty
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This week US President Donald Trump dismayed the free-traders of the world when he confirmed he would be whacking import tariffs on steel and aluminium coming into the US.

The dismay felt by the economically initiated global elite may have left many Australians wondering what everyone is getting so worked up about. Does so much really rest on flogging steel to the Yanks?

To answer that we need to look past the rhetoric at the facts.

While Mr Trump hinted he might exempt Australian steel and aluminium from these tariffs, as things stand only Canada and Mexico will have tariff-free access to the US market.

Everyone else, Australia included, will have to pay a hefty tax on their imports – 7.7 per cent on aluminium imports, and 24 per cent on steel.

This will make Aussie steel and aluminium more expensive in the US market, making it harder for Australian producers to sell their steel there.

It will also potentially see global steel and aluminium producers who are now excluded from the US market ‘dumping’ their metals in Australia, putting more pressure on the local market.

The cumulative result will almost certainly be lower revenue for local producers and, ultimately, job cuts.

The question, then, is: does Australia even export all that much aluminium and steel to the US? Let’s start with aluminium.

Australia’s aluminium industry

Australia, believe it or not, is the second biggest aluminium producer in the world, according to figures from the Australian Aluminium Council.

Total exports of aluminium products in 2016 equaled $10.2 billion – that represented 80 per cent of Australian aluminium. The remaining 20 per cent went to the domestic market.

The mining of bauxite, nickel ore and other minerals needed to produce aluminium employs more than 7000 people.

In other words, it is a considerable industry. However, the vast bulk of Aussie aluminium goes to Asia. Of the $10 billion exports, the Australian Aluminium Council told The New Daily less than $100 million-worth finds its way to the US.

portland smelter
The Portland aluminium smelter in south west Victoria. Photo: Alcoa

US trade, then, is a very small portion of total trade.

However, The New Daily understands that the industry has two more serious concerns. The first is that other aluminium producers, excluded from the US market, will flood the Australian market.

The second is that other countries will respond to the US tariffs by putting up tariffs of their own. If a country like China did that, it could be disastrous for the Australian aluminium industry.

Even if the US does exempt Australian imports, these two factors will still be a problem.

Australia’s steel industry

Almost exactly the same factors are at play in the Australian steel industry.

Last year Australia sent $270 million of steel to the US market. That was out of a total turnover of $29 billion.

In percentage terms the US makes up a little over 1 per cent of total steel sales. But as with aluminium, while tariffs wouldn’t have a major direct impact on the steel industry, the flow-on effects could cause real problems for Aussie steelmakers.

The Australian Steel Institute’s chief executive Tony Dixon said the industry supported the Turnbull government’s push for no tariffs on US imports. But more broadly, he stressed the need for better “anti-dumping” rules.

Australian steel and broader manufacturing jobs depend upon a robust anti-dumping regime, and the ASI would welcome better resourcing of the Anti-Dumping Commission and supports the transfer responsibility for safeguards investigations from the Productivity Commission to the Anti-Dumping Commission.”

What exactly is dumping? The Australian Anti-Dumping Commission explains it as follows:

“Dumping occurs when goods exported to Australia are priced lower than their ‘normal value’ which is usually the comparable price in the ordinary course of trade in the exporter’s domestic market.

“‘Normal value’ may also be determined using either comparable prices to a third country or the cost of production plus selling, general and administrative expenses and profit.

“Dumping is not prohibited under the WTO international agreement. But anti-dumping duties may be imposed when dumping causes, or threatens to cause, material injury to an Australian industry.”

Anti-dumping rules have been called an alternative form of protectionism to outright tariffs.

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