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The Guardian - AU
The Guardian - AU
Business
Jonathan Barrett Senior business reporter

How Donald Trump’s new trade tariffs could end up hurting Australia

A container ship is unloaded at Port Botany in Sydney.
Donald Trump’s new trade tariffs could affect Australian goods such as canola oil, beef, and critical minerals. Photograph: Dean Lewins/AAP

As a trade-reliant nation, Australia is susceptible to the US’s new tariff regime, despite not being a direct target of Donald Trump’s import taxes – yet.

China has been hit with 10% tariffs on all of its US exports. It responded with levies on selected US imports, along with export controls on strategic minerals used in advanced technologies, including space and weapons systems.

The US president has also set in motion 25% import taxes for Canada and Mexico across all products other than Canadian energy, which will face a 10% tariff, unless deals are struck within 30 days.

But Australia could still be affected. Here are four ways a global trade war could affect us:

Thermo fallout

China announced retaliatory export curbs on items related to tungsten, tellurium, bismuth, indium and molybdenum after the US tariffs were implemented. 

China controls much of the world’s supply and processing capability for important metals used in devices such as smartphones, batteries and high-powered magnets. Tellurium, for example, is one of the rarest metals on Earth, used in thermoelectrics and thin-film photovoltaic solar panels.

The west has long been aware that China’s dominance of these sorts of metals posed a problem. But building mines and processing capabilities can be a long and costly process.

Australia and Canada are the obvious stable, resource-rich countries to develop these facilities to supply to the US, although the deteriorating relations between Washington and Ottawa complicate matters.

The chief executive of the Perth-based Association of Mining and Exploration Companies, Warren Pearce, said overseas customers and investors had already expressed renewed interest in Australian companies tapping into strategic minerals.

“The US is going to start looking around for other places. The first place to look is Canada, but Australian companies in those niche critical minerals could well be expected to benefit from additional investor and customer interest coming out of the United States,” said Pearce.

 “Our members are reporting a lot of increased interest in people talking to them about their projects.”

Iron fist

While some Australian resources companies may get a lift from China’s retaliatory tariffs, a full-blown trade war would be bad news for the country’s largest and most valuable commodity export: iron ore. 

If China’s already fragile economy falters, demand for steel-making materials would drop.

“Overall, an international trade war is not going to be good for a trading nation,” Pearce said.

“We probably have more to lose from a trade war than we have to gain.”

Trump has also warned he will extend his tariff regime to apply to aluminium, steel and copper to encourage producers to manufacture in the US. Australia secured rare exemptions to a similar levy Trump introduced in 2018.

Australia’s largest steel producer, BlueScope, declined to comment.

Even if Australia was to sidestep tariffs, a broad US levy on construction materials could prompt overseas producers to sell cheap steel and aluminium in Australia, undercutting the local manufacturing sector – an issue raised by the New South Wales premier, Chris Minns.

China’s retaliatory tariffs also target US energy exports, including coal, oil, and gas. While this could benefit Australian energy producers, the impact on consumer prices is unclear.

Shrinking herds

Canada and Mexico are major suppliers of cattle and beef to the US at the same time as America’s cattle herd has been shrinking, making them sensitive areas for tariff retaliation if a compromise is not reached.

Australian beef and cattle prices would rise if that trade is disrupted, according to Commonwealth Bank agricultural economist Dennis Voznesenski.

On the flipside, Canada may redirect its significant canola exports to non-US markets if trade relations deteriorate, creating more competition for Australia’s oilseed farmers.

“If America buys less canola oil, it will mean that the profit margins of those crushers goes down and they will probably crush less canola and send more, unprocessed, to the rest of the world and compete with us,” Voznesenski said.

Canola is Australia’s third-biggest crop, according to government figures, behind barley and wheat, and is a significant agricultural export.

Currency woes

When Trump announced the new tariff regime, the Australian dollar plunged to pandemic-era lows against the US dollar, and stocks were sold off. 

The local currency, viewed as a risk asset, then jumped after Canada and Mexico were given a 30-day tariff reprieve and China’s retaliatory actions were not as aggressive as feared.

While it is difficult to forecast currency movements in an era of protectionism, traders generally expect that any re-escalation in tariff disputes will pressure the Australian dollar.

There are, however, other factors at play, given Australia could be going into an interest rate cutting cycle, which typically lowers the value of a currency. Meanwhile, inflation is elevated in the US, lifting the value of the greenback. 

ANZ said: “The divergence in monetary policy expectations between the US and Australia is widening and is likely to weigh on the [Australian dollar].”

A falling Australian dollar is generally good for exporters, but bad for importers. It’s typically bad for those going overseas – unless they are travelling to a location with an even weaker currency – but good for enticing tourists to Australia.

While exchange rates can impact interest rate settings, the first weeks of Trump’s new term has shown that any movement in the Australian dollar can be unwound in minutes depending on the flavour of the latest tariff announcement.

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