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Trump says more tariffs are coming and we should believe him (Getty Images Plus)

Steel yourselves, Trump’s worldwide tariffs threaten Australia more

The direct consequences of steel and aluminium restrictions are small – but the big picture cost to Australia lies in damage to the global economy.

Roland Rajah

12 March 20253 min read

The Trump administration has decided there will be no exemption for Australia from its 25% steel and aluminium tariffs. Though somewhat expected, this has still come as a shock to the political system here in Australia. Policymakers here had hoped that close security ties and the fact that Australia runs a trade deficit with the United States could have been enough to earn an exemption, as was achieved during the first Trump administration. Alas, it seems that will not be (though some are still holding out hope of an eventual exemption).

A few quick reactions to what this all means.

First, despite considerable Australian handwringing, it’s worth remembering the economic impact will be quite minor. Australia’s steel and aluminium exports to the United States were about A$820 million last year, making up 0.2% of Australia’s merchandise exports. The impact can also be managed by Australian firms reshuffling their operations, using US-based facilities for American sales, and sending Australian exports elsewhere in the world. The main impact will be higher prices for US firms and consumers.

This episode provides a direct signal for Australia that it is not special.

Second, the real trade threat to Australia’s economy is not from direct tariffs but the damage from Trump’s protectionism towards the rest of the world. He has already imposed additional 20% tariffs on China, by far Australia’s largest trading partner. And Trump is pushing for many more tariffs, spooking American businesses and financial markets.

Third, this episode should drive home the reality Australia faces in dealing with Trump and his administration. There is little-to-no clear policy foundation to many of the administration’s moves, especially when it comes to tariffs. Or at best, they are so unorthodox and ill-founded, to leave little room for constructive engagement – such as using tariffs to raise revenue and the hope that this will somehow recreate the domestic manufacturing jobs of the past. Alliances, security partnerships, and a history of friendship also do not count for much. The treatment of Canada and Europe already attests to this. But this episode provides a direct signal for Australia that it is not special.

Fourth, this is a further indication of how much more serious the Trump administration is with its agenda compared to last time. Trump says more tariffs are coming and we should believe him, even if there is still hope he will remain at least somewhat constrained by the stock market’s reaction.

So, what should Australia do?

Economists usually say there is little value in retaliating, especially when there is not that much directly at stake. The approach might be the same one that worked well with China’s trade coercion against Australia starting in 2020 – by remaining stoic and turning the other cheek.

This is however a strategic game. And Australia’s main trade interests lie in an open global economy, not bilaterally in its direct trade with the United States. Trump’s America is tearing down an open global economy, economically coercing erstwhile friends, and doing so with little-to-no real economic grievance to point to.

Canada, Europe, China and others will retaliate or are already doing so. Should Australia follow suit, as part of an informal coalition to deter the United States and punish its trade unilateralism? One constraint is it is difficult to think of ways Australia could really impose any acute economic pain on the United States by imposing its own tariffs. Any Australian tariffs might then only be symbolic.

A good idea might be that of Professor Shiro Armstrong at the Australian National University who has suggested Australia and others could retaliate by suspending overly stringent copyright and patent rules favouring US commercial interests – rules that these countries introduced to gain access to the US market, which is now being rescinded.

About the author

Roland Rajah

Roland Rajah is Lead Economist and Director of the Indo-Pacific Development Centre at the Lowy Institute, focusing on economic development challenges across Southeast Asia, the Pacific Islands, and South Asia. His research spans macroeconomics, aid and development finance, geoeconomics, and regional integration.

Topics

United States Trade & investment Economy Australia