7 hours Ago By The Guardian
Donald Trump considered and then summarily rejected Australia’s pleas to be exempted from the punishing tariff regime the US president has imposed upon all steel and aluminium imports coming into America. Australia’s prime minister, Anthony Albanese, says he will keep up the campaign for a carve-out for his country. But others are predicting this is just the start of what could soon be a global “trade war”.
So what does that mean, and what could be to come? Related: Anthony Albanese denounces US tariffs as ‘not a friendly act’ after Donald Trump refuses exemption for Australia What is a tariff? A tariff is a tax charged on the import of goods from foreign countries. Historically, tariffs have been used to generate revenue for governments. Now, they are mainly used as a protectionist measure, to shield domestic industries from foreign competitors (who might be able to make goods more cheaply, more efficiently, or better).
But Trump’s second administration is also using them as leverage – perhaps even coercion – to pursue his foreign policy goals. Most economists agree it’s the citizens of the country imposing the tariffs (in this case the US) who ultimately bear the majority of the tariff cost, as importers will typically pass the extra cost on to the consumer by raising prices. “Tariffs don’t make any sense, it’s an act of kind of economic self-harm,” Australia’s deputy prime minister, Richard Marles, said.
Why is Trump doing this? Trump claims the global trading marketplace is unfair, and the US has been exploited by other countries for decades . In a post to TruthSocial he wrote: Trump argues tariffs will boost US manufacturing and protect jobs, as well as raising tax revenue and growing the economy. He told reporters this week: His enthusiasm is not shared by experts in the field.
Joseph Stiglitz , economics professor at Columbia University and a winner of the Nobel prize in economic sciences, says: Marcus Noland , executive vice-president of the Peterson Institute for International Economics, says: How significant are tariffs on steel and aluminium? Not huge – yet. Steel and aluminium are only minor exports to the US. According to UN Comtrade data, in 2023 Australia exported US$12.
59bn worth of goods to the US. Of that, aluminium was just under $317m and steel and iron was $237m. Combined they represent about 5% of the value of exports to America.
The significance of the global tariff regime is potentially far more profound. Many analysts are already calling it a “trade war” that has opened up between the US and many of its trading partners, including close allies such as Canada. Trump's economic coercion is particularly targeted at Canada, China and Mexico, who combined represent about 40% of imports to the US but who Trump accuses of failing to stop the flow of migrants and illegal drugs such as fentanyl into the US.
Some countries, such as China , are responding with retaliatory tariffs, which is expected to lead to further escalation. The Australian government has said it will not impose retaliatory tariffs. Didn’t Australia get an exemption from these tariffs? That was last time.
Australia, as an ally, made the case that it is a country that runs a trade deficit with the US (a surplus from Washington’s perspective: that is, Australia imports more from the US than it exports to the US). Australia also argued it was an ally with a free trade agreement with the US, and with close political, security and economic relationships. But Trump’s second administration is shaping up to be an entirely different era.
Trump says he regrets the exemptions he gave to Australia in his first term (specifically for the precedent they set for other countries claiming similar carve-outs). Should Australia be worried about these tariffs? If you are a steel or aluminium producer in Australia shipping your product to the US, then this is very troubling news. For the rest of Australia, there could be more to come.
Trump has forecast further tariff regimes on a host of other goods, including pharmaceuticals and agricultural products. Meat represented 20% (US$2.59bn) of exports in 2023.
Pharmaceuticals (US$1.07bn) made up 8.5%.
Trump has forecast potential tariffs of “25% and higher” on these imports, which would further raise prices in America and further hurt Australian exports. More broadly still, the most significant impact to Australia could be Trump’s global “trade war” and its depressive effect on trade around the world. “The main threat to Australia by far comes from Trump’s trade war leading to a hit to global trade and growth leading to less demand for our exports,” said Shane Oliver, chief economist at AMP, in a note to investors.
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