Author: Daniel Steedman
May 1 will be an important day for the business community because the United States will decide whether or not to maintain its tariff exemptions on steel and aluminium. This will signal the next development in the so called emerging trade war.
Australian producers will be impacted. So will producers in other nations allied to Washington. They include Canada, Mexico and the European Union.
The exemptions were announced on March 22, however nobody can be sure what happens after May 1. It is up to President Trump to decide.
Some sources in Washington indicate that the exemptions will be extended. Each nation will be considered individually. Canada and Mexico have made some progress with the talks to renegotiate NAFTA so they are likely see an exemption granted.
What does this mean for Australia?
I believe Australia will also be granted an exemption. Let me qualify this by stating that, under the present administration, there will be a quid pro quo somewhere down the line.
Australia is looked upon favourably and is a highly regarded partner by many in Washington. Nevertheless, those who have a stake in Australian steel and aluminium will be watching nervously. The questions for industry leaders in preparing a strategy are twofold. For how long will the exemption be extended ? What comes after that?
Taking a broader view, all Australian industries that rely on significant export driven revenues should be closely watching how the steel and aluminium tariffs unfold. Either way, Trump is changing the field on which the game of international business and commerce is played. In doing so he introduces more volatility into the market.
Competition with China
But there is more to the story. Trump was clear, his tariff measures were aimed squarely at China. This was an oft repeated theme in his election campaign. It is how he has sought to implement them that needs to be understood.
The tariffs were implemented under Section 301 of the Trade Act. That means they were imposed unilaterally by the President. This is permitted in circumstances, among others, where the actions of foreign governments may restrict or hamper the commerce of the United States. Trump is free to act as he sees fit on this matter without the need for the support of Congress. It is this degree of independence Trump has that is a concern.
Another crucial point to understand is that these tariffs have an inherent national security element under Section 232 of the Trade Expansion Act. This too is a cause for concern. It suggests that the Trump administration is looking to use trade, or economic statecraft, to impose its will on other states in strategic terms.
Under the auspices of Section 301 Trump has found room to move independent of Congress and in a manner that may well have implications beyond international trade. This goes to elements of foreign and strategic policy which can, and do, change the nature of international relations. The present state of Sino-U.S. relations is a telling example.
Domestic politics at play
Trump has been adamant since his election campaign that China has ripped America off. This was an important pillar in his narrative to “Make America Great Again” and to bring jobs back for U.S. industries. It plays to those who voted for him. Trump’s position on international trade is about domestic politics. Don’t forget, the mid-term elections are not far away. Trump’s future legislative agenda relies on the Republicans maintaining the House majority. The recent tariffs make him look tough and show that he is fulfilling his promises to those who voted for him in 2016.
Changing the game of international trade and commerce
President Trump is going firmly against more than 70 years of foreign and economic policy tradition. This has been upheld by Democrats and Republicans alike. A fundamental pillar of this is a commitment to freer markets and greater international trade. In seeking to strengthen his domestic base it could well be that Trump is undermining not only America’s standing in the international system, but the international system itself. Trump’s apparent zero sum approach to trade, and international relations more broadly, means more challenges lie ahead for the business community.