On Trump’s tweets, trade wars and tariffs: Australian business needs to steel itself for action

Anyone following US President Donald Trump’s tweets must have been wondering where he was going with his threats of a trade war. He tweeted on 2nd March that trade wars are good, and easy to win.

It is generally assumed that his target was China, but it is starting to look like he might actually have been taking direct aim at some of America’s friends and allies. On 4th March he tweeted “We are on the losing side of almost all trade deals. Our friends and enemies have taken advantage of the U.S. for many years. Our Steel and Aluminium [sic] industries are dead. Sorry, it’s time for a change! MAKE AMERICA GREAT AGAIN!”

He followed the tweet by announcing 25 percent tariffs on steel imports and 10 percent on imports of aluminium. China may have been the target of this action but the truth is China makes up just two percent of the US’s imports of steel and aluminium. The rest is imported from Canada, the EU, Brazil, Mexico, and, of course, Australia. This would suggest that one or all of the other exporters of steel and aluminium may be the target, or at least collateral damage. Harvard economist Ken Rogoff, who is currently visiting Australia, told the ABC this morning that “China is the elephant in the room” that President Trump seemed reluctant to name. Professor Rogoff said he was afraid “our friends like Australia are going to be collateral damage here.”

Unfortunately Prime Minister Malcolm Turnbull’s attempts to secure an exemption during his visit to Washington last week seems to have fallen on deaf ears. It is not clear the Free Trade Agreement between Australia and the US will offer any protection for Australian steel and aluminium exporters in the circumstances.

An EU threat to respond in kind, only served to raise the ire of the American President, and the stakes. President Trump tweeted: “If the EU wants to further increase their already massive tariffs and barriers on US companies doing business there, we will simply apply a Tax on their Cars which freely pour into the US. They make it impossible for our cars (and more) to sell there. Big trade imbalance!” (The President might be unaware that BMW’s second largest plant in the world is based in Spartanburg County, South Carolina, and is a major exporter from the US, as well as a producer for the local market.)

News yesterday of the resignation of the President’s Chief Economic Advisor Gary Cohn, a free trade advocate in the White House, caused stock markets around the world to fall. His departure was directly linked to the President’s decision to raise tariffs on steel and aluminium. It has dashed hopes for a quick resolution of the trade issue.

Even if Australia can gain an exemption under the Australia-US Free Trade Agreement, and a proposed FTA with the EU intended to counter rising global protectionism pays off, a trade war between the two largest economies in the world (if the EU is treated as a whole) would hit Australia hard. A second trade war with China, our largest trading partner, would prove devastating. The boffins are probably only just starting to crunch the numbers. We’ll no doubt be hearing from them in the coming days and weeks as the situation looks likely to escalate.

But it doesn’t require genius and a great deal of economic modelling to know that at the very minimum Australia should expect commodity prices to fall and a flow on effect on our stock market, jobs and household incomes. A prolonged and multi-front trade war would be devastating.

So what can Australian companies concerned about the prospect of trade war(s) do to help avert the worst case scenario(s)?

As a first step companies need to emphasise to our politicians and bureaucrats in Canberra what is at stake for their businesses and industries and encourage discussions at the diplomatic level in the key markets that are considering going to the mattresses on trade (a reference from “The God Father”, not the politics of the National Party, for the uninitiated). Businesses need to approach relevant industry associations and think tanks for support. And an opinion article here or there by our business leaders and captains of industry wouldn’t go astray.

But conversations need also to be had in Washington, Beijing, Brussels, Berlin, Paris, and other relevant capitals. Australian companies with significant investments in relevant markets should start walking the halls of parliaments and badgering bureaucrats in key markets. They should also do so in conjunction with local business partners and industry associations in those markets. They need to be seen as local businesses providing jobs and opportunities for the local markets.

As smaller Australian exporters might find tin ears in those places they would be well advised to leverage their partnerships overseas. Local companies will be heard where our exporters won’t. It is imperative that business partners of Australian companies in overseas markets be engaged to lobby their respective governments. Partners need to emphasise that, despite the thinking of Mr Trump, trade wars are neither good nor easy. They are zero sum games where everyone loses.

Let’s hope President Trump’s tweets are just “bluster and grandstanding” as Professor Rogoff has said, and that he can be coaxed away from the precipice. With the US President tweeting his every declaration of trade war on America’s closest friends and allies, it is a time to take action.

For a discussion on what can be done and how we and our global network of offices can help please email admin@powelltate.com.


By Alistair Nicholas

Executive Vice President – Director, Special Projects

(Alistair Nicholas is a former Trade Commissioner to Washington DC and was Trade Policy Advisor to the Federal Coalition)