Australia’s secret weapon in fighting new tariffs
When it comes to facing unwanted tariff restrictions, Australia has a secret weapon up its sleeve.
In our very recent history, we faced down a swag of prohibitively high tariffs imposed by China against barley, wine, coal, beef, lobster and even timber after we were one of the first countries to call for an inquiry into the origins of COVID-19 within China.
Those restrictions have now all been lifted after continuing diplomatic efforts and trade negotiations but they leave us in a really great position in coping with the new US tariffs on aluminium and steel that could be coming our way in the next couple of weeks unless Australia scores a surprise exemption.
Trump exemption looks unlikely
Despite President Trump promising to look at an exemption for Australia, such an outcome seems unlikely given some very blunt criticisms of Australia by fellow Republicans, especially trade adviser Peter Navarro.
What we have hopefully learned from the Chinese tariff war is that imposing retaliatory tariffs will only hurt Australia and is not the way to end such impositions but rather a way in which the trade war can be extended.
Treasury Secretary Steven Kennedy seems to understand that retaliation is a zero-sum game, particularly for a middle sized country with open trade borders like Australia.
“It will seem counterintuitive to many, but responding to tariffs or trade restrictions with similar measures will only make matters worse,” Dr Kennedy said.
“Producers in the targeted industries were adversely affected.
“But governments did not compound the economic costs by implementing retaliatory tariffs or barriers that would have harmed Australian consumers and businesses, and in many cases, our exporters found alternative markets.”
Finding alternative export markets is an Australian superpower
It is his last point in which Australian exporters were broadly successful in finding alternative markets that points the way to an effective reaction to rising trade barriers.
While our Treasurer, Dr Jim Chalmers, has held successful talks with US officials including his counterpart Scott Bessent, there is no way of knowing in advance whether Australia will be spared the 25% aluminium and steel tariffs or whether we will be hit with them along with many other nations.
As we are quickly learning such decisions lie solely with President Trump and being a strong defence ally and having a trade surplus with the US may not be enough to save Australia from this latest round of tariffs, which are due to take effect from the middle of March.
Speaking at a Senate estimates hearing, Dr Kennedy pointed out the futility of fighting fire with fire and imposing retaliatory tariffs.
Trade restrictions cost consumers
“For a medium-sized economy such as Australia, there is overwhelming evidence that the use of trade restrictions imposes costs on our consumers and businesses,” Dr Kennedy said.
“If Australia were to impose tariffs, we would bear nearly all the cost, given our size and inability to affect the world prices of the goods we import.”
“It will seem counterintuitive to many, but responding to tariffs or trade restrictions with similar measures will only make matters worse,” Dr Kennedy said.
Indirectly, Dr Kennedy’s comments also show the futility and cost of the US imposing tariffs for American consumers, although President Trump seems uniquely enamoured by the trade tool which many other nations have consigned to the dustbin of history.
Australian industry is now experienced at successfully fighting a trade war and being able to find new markets for our goods at a time of stress is a much more effective way of fighting back than going down the tired route of retaliatory tariffs instead.