Lisa Toohey, UNSW Sydney

“Unjustified” and “not the way that friends and allies should be treated”. That’s how Prime Minister Anthony Albanese and Foreign Minister Penny Wong have described the latest shot in United States President Trump’s trade war.

Effective today, there is a 25% tariff on all imports of steel and aluminium into the US – including on Australian products.

Australia’s direct economic hit will be relatively small – less than A$1 billion of steel and aluminium was exported to the US in 2023, according to data from UN Comtrade.

But the tariffs pose a more fundamental challenge to Australia’s trade strategy and how we manage key alliances in an era of resurgent protectionism.

No longer a hypothetical

Trump’s plan was announced in February, but Australia was hoping to negotiate an exemption, as in the previous Trump administration. They have not been successful.

This development shifts analysis from hypothetical to immediate. Steel and aluminium exports to the US represent just a tiny fraction – 0.2% – of Australia’s total exports, so experts expect the impact will not be widely felt.

Australia’s few ageing aluminium smelters pose no threat to the US’ aluminium producers, contrary to claims from US trade adviser Peter Navarro.

Steel is slightly different. Bluescope Steel will experience the biggest direct hit. It exports around 300,000 tonnes of semi-processed steel annually to the US. It will now be subject to tariffs.

While BlueScope is Australia’s largest single exporter of steel to the US, it also has a plant in Ohio that employs 4,000 workers and will see some initial short-term benefits from the tariffs that will hike up the price of Canadian steel imports.

In the long term, however, tariffs are an “own goal” in the trade game. Data from tariffs in the last Trump presidency have demonstrated their limited impact on generating jobs and negative effects on domestic industries that rely on these inputs.

Ripple effects

The next challenge for Australian steel and aluminium exporters, as well as their upstream and downstream counterparts, is how to navigate the uncertainty in global markets, as global supply chains adjust.

China may increase exports of cheaper steel and aluminium to Australia, putting further pressure on local producers, and potentially sparking further anti-dumping investigations.

The 12,000 Australian companies that export to the US will be asking “what will be the next target?”

More than 40% of Australia’s high-tech engines, 50% of aircraft and space parts and almost 60% of machine tools are sent to the US. These industries are at significant risk.

It’s also a worry for services suppliers, who export $6.2 billion worth of professional and other services each year. Australia’s largest exports to the US are financial services, gold, meat, transportation services and vaccines.

Many more exporters are watching anxiously in case these tariffs spark a global trade war and Australia is caught in the crossfire. The overnight tariff skirmish between Canada and the US shows the dangers of escalation.

We’re not going tit-for-tat

The absence of Australian steel and aluminium from the US Trade Representative’s 2024 report on trade barriers highlights the arbitrary nature of this decision. Australian steel and aluminium have never been viewed as a threat to the US until now. They are inconsistent with the agreed tariffs between the two countries.

The Australian government might consider whether to bring a dispute to the World Trade Organisation (WTO), but due to the dismantling of its appeal body (also at the hands of the US), the WTO is currently something of a toothless tiger.

Australia’s commitment to (mostly) free trade means the government will refrain from imposing reciprocal tariffs on the US. This rationale makes sense: even reasonable retaliatory measures would be unlikely to protect Australian interests and instead merely escalate tensions.

While it’s cold comfort to affected Australian businesses, experts agree that Trump’s tariffs will become an “own goal” for the US, with prices certain to rise, causing additional pain for consumers and producers alike. Financial markets are already showing stress.

Damaging to the alliance

The failure to secure an exemption despite Australia’s strategic alliance with the US sends a concerning signal about how the US values its Australian relationship. Public support for the US alliance weakens in the face of apparent bullying and flouting of international rules.

What emerges is a trust deficit that extends beyond government relations to public sentiment. Many Australians may begin questioning whether the “special relationship” with the US delivers tangible benefits during times of economic tension.

Under the latest Trump administration, Australia has suffered a serious decline in trust that the US would act responsibly in the world, according to polls from the Lowy Institute.

In 2024, the same poll showed that an astounding 92% of Australians view political instability in the US as an “important” or “critical” threat to Australia’s vital interests.

Rethinking relations

Trump’s tariffs test Australia’s ability to balance different facets of its relationship with the US – security, cultural and economic interests.

It also raises questions about how Australia can best navigate an increasingly unpredictable global trade environment where traditional alliances provide less economic loyalty than they once did.

These tariffs are more than just a tax on specific materials. They are a timely reminder to Australian businesses of the importance of market diversification. But it also shows that the current US administration has thrown out the rule book. For at least the next four years, it is nothing like business as usual.

Lisa Toohey, Professor of Law, UNSW Sydney

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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