Impact of Trump's Tariffs on Australia

The recent announcement by US President Donald Trump regarding a new executive order imposing 25% tariffs on all steel and aluminum imported into the US has raised concerns in Australia. Prime Minister Anthony Albanese has reported that securing an exemption for Australia from these tariffs is currently "under consideration," but the outcome remains uncertain.

In 2018, then-Prime Minister Malcolm Turnbull made a strong case for an exemption, and Albanese might benefit from similar approaches. Should Australia fail to secure a carve-out, it is likely that local steel and aluminum producers will bear the brunt of the tariffs, though estimating the exact impact is challenging.

Regardless of whether Australia is granted an exemption, the implications of Trump's latest tariffs will ripple through the world economy and into the daily lives of Australians.

Producers Will Be Hit

If the tariffs take effect, Australian-manufactured steel and aluminum will cost more for US manufacturers compared to locally produced metal. This price increase is expected to decrease demand for Australian goods.

Fortunately, three key factors may mitigate some of the negative impact:

1. Rising Metal Prices in the US

It will likely take time for US metal production to scale up to compensate for reduced imports. As a result, US manufacturers may continue to purchase imported metals despite the higher costs, driven by the inefficiencies of domestic producers.

2. Limited Market Size

US demand for Australian steel and aluminum is relatively small. In the 2022-23 financial year, Australia produced A$113 billion in primary and fabricated metals, but less than US$1 billion of that was exported to the US—approximately US$500 million in aluminum and under US$400 million in steel. This means exports to the US account for about 10% of Australia's total metal exports.

3. Competition in Major Markets

If key markets like China and the European Union respond with retaliatory tariffs on US metals, Australian steel and aluminum could become more competitive in those regions.

Some Stand to Benefit

While the news of tariffs may cause anxiety among workers in Australian steel and aluminum plants, some of the country's largest manufacturing companies could see benefits. For instance, BlueScope Steel has significant operations in the US and reportedly enjoyed a rise in share prices following the tariff announcement.

Similarly, US-based Alcoa, which operates alumina refineries in Western Australia and an aluminum smelter in Victoria, is expected to benefit its US operations. Rio Tinto may be more concerned about the effects on its substantial operations in Canada, which contribute nearly half of its global aluminum output.

Potential Decline in Iron Ore Demand

The ramifications of the US tariffs could extend beyond steel and aluminum, influencing Australia’s broader economy. While aluminum is the country's top manufacturing export, it constitutes only about 1% of total exports, with steel accounting for even less.

Iron ore, however, represents over 20% of Australia's exports, and declines in steel and aluminum demand could adversely affect the demand for iron ore and its derived products, leading to significant economic strains. As US manufacturers move towards reducing their use of steel and aluminum due to the price increases, global demand, including for the ores necessary for their production, is expected to decline.

Market investors seem to share these concerns, as share prices for Australian mining companies like Rio Tinto and BHP have dropped in response to the tariff announcement.

Imported Goods Will Be More Expensive

Ultimately, many products that Australians buy may see price increases. All US goods using steel and aluminum at any stage of production will carry higher costs due to the tariffs, which may also negatively impact productivity in the US.

About 11% of Australia’s imports originate from the US, half of which includes machinery, vehicles, aircraft, and medical instruments, all likely to contain steel and aluminum. Consequently, these products are foundational to various other goods consumed in Australia, suggesting widespread price impacts across a variety of sectors.

tariffs, economy, Australia