The United States will be imposing a 25% tariff on steel imports and a 10% tariff on aluminum imports.Donald Trump has allowed a 15-day negotiation period for countries to argue for an exemption. Canada and Mexico will be exempt from the tariffs initially, but the president says they will lose that status if the US doesn’t get what it wants during its renegotiation of the North American Free Trade Agreement.
Will Australia get an exemption?
Trump has made strong hints that Australia will be given special consideration, given the special ties between the two countries, but no firm answer. “We have a very close relationship with Australia,” he said. “We have a trade surplus with Australia. Great country, long-term partner. We’ll be doing something with them. We’ll be doing something with some other countries.”The Turnbull government is quietly confident that Australia may get an exemption from the tariffs. The total value of steel imports to the US is $17bn, of which Australia contributes just $200m – about 1%. Canada and Mexico, which have been granted exemptions, contribute about 25% of the total between them.
The Australian finance minister, Mathias Cormann, said the government was “very encouraged” by signals from the Trump administration that Australia may get an exemption, but emphasized there was “a bit further to go” over the next 15 days.
What happens if the talks fail?
The World Trade Organization could challenge the tariffs.
The Trump administration maintains the tariffs are necessary because the quantity of steel and aluminum in the global market is threatening to impair the “national security” of the US. Trump said the US needs to increase domestic steel production from its present 73% of capacity to approximately an 80% operating rate, which is the minimum rate needed for the long-term viability of the industry.
Alan Oxley, the managing director of ITS Global and a former Australian diplomat, has said most free trade agreements defer to WTO rules in key areas and many WTO principles are embedded in major FTAs. “The long and short of it is that no US administration can overturn legally binding commitments in WTO rules,” he has written. But under WTO rules, there is a “national security exception” – located in article 21 of the General Agreement on Tariffs and Trade – which allows members to impose trade restrictions on certain products for the purposes of national security. It is impossible to predict how the WTO will rule on that point.
The European Union and South Korea have said they could challenge the tariffs through the WTO, so we may find out. Former US president George W Bush tried to imposed tariffs of up to 30% on steel imports in 2002, but the WTO rejected the tariffs.
Can Australia retaliate if it does not get an exemption?
Roland Rajah, the director of international economy at the Lowy Institute, said the WTO dispute settlement system is fraught. He pointed out the US has been undermining the dispute settlement process for a number of years, so if a complaint was lodged against Trump’s tariffs, it could hit some institutional hurdles inside the WTO. Rajah said if Australia fails to get an exemption, the Turnbull government would have some grounds to retaliate, but it would be a complicated process.“It’s supposed to be concluded within 12-15 months, but it can often go for longer,” he said.
The US potentially has more to lose in any trade war as it has a trade surplus with Australia (it exports more than it imports from Australia). However, steel and aluminum are not even among the top 10 exports from Australia to the US. Beef and other meat, pharmaceutical products, aircraft parts and alcohol are significantly more valuable, and Australia may not want to put the US market for those products in jeopardy by escalating tensions.