Collateral damage – and it’s not only from the (unlikely) risk of a world-wide protectionist tariff war. ‘Friendly (economic) fire’ will unintentionally hit Australia if US President Donald Trump’s justifiable assault on untenable Chinese trading practices is not resolved speedily; continuing uncertainty kills business confidence. All this has little to do with the nonsensical charade of negotiations to protect Australia from Trump’s political stunt of making a show of imposing tariffs (for national security) on the $30 billion of US imports of steel and aluminium – and then exempting the ‘friends and allies’ who supply most of it. So the US’s ‘national security’ steel needs were met by the 40 per cent from its friends in the Americas (Canada, Mexico, Brazil and Argentina) the 10 per cent from South Korea, Japan’s five per cent and the EU. The latest ‘threat’ of possible quotas next month on friends and allies is simply to prevent transhipment to the US from the bad guys via the good guys of the steel and aluminium which Trump claims is swamping the US and disrupting industry. The tariff, which threatened a far greater adverse economic impact on US industries using steel and aluminium than the benefit it claimed to bring to the steel industry, was really only a smart-arse device whose main impact (apart from important domestic political considerations) was to show that foreign good guys get rewarded and bad ones are punished, with China being the main bad guy (with Russia’s $3 billion also hit). This is despite China being a relatively minor player in US steel and aluminium imports, as the real purpose of this tariff is part of a campaign to hit a wide range of Chinese imports with $60 billion in new imposts. Then the US aims to get the good guys together to launch a united attack through the World Trade Organisation on China’s widespread violation of trade rules. But first, Trump faces the possibility that the WTO will repeat its 2002 banning of President George W. Bush’s steel tariff if it does not accept Trump’s national security justification.
Australia is officially a good guy, with the Donald tweeting: ‘We don’t have to impose steel or aluminium tariffs on our ally, the great nation of Australia’, a decision of little economic consequence to the US in view of Australia’s piddling one per cent of this US market – but of some significance as a victory for an embattled Turnbull government. But will ‘good guy’ Australia dare to be a party to the US’s proposed WTO case against China, our biggest trading partner, on whom our future prosperity depends? Trump’s campaign looks like a negotiating position for doing a deal to fix not only what he (wrongly) regards as an unacceptably large US trade deficit with China but to force China to cease stealing US intellectual property. Not only are hackers used to acquire technology and trade secrets but there are also official requirements that such information be divulged. The Wall Street Journal has reported that the Trump administration, acting on a detailed report on Chinese theft of US intellectual property and estimating the damage to US companies in China of ‘forced technology transfer’ at $US 30 billion a year, is considering a ‘reciprocal’ set of rules for Chinese investment in the US, such as a requirement to do business only as a joint venture with a US partner, to whom technology and other intellectual property must be made available.
The real problem for Australia emerges from the potential disruption to the Chinese economy that a continuing US economic trade assault would have.
While we fussed about the $400 million in steel and aluminium exports to the US, our 130-times larger $63 billion exports of the steel-making raw materials, iron ore and coal, to China have been seen as threatened by any worldwide trade war, but not in the more likely event of China being forced to abandon its improper trade practices and to cut its excessive steel-making capacity.
With China producing half the world’s steel, the potential for disruption is significant – as it is for its raw material supplier, Australia.
Our next-biggest iron ore and coal customers, South Korea and Japan, which together provide us with $31 billion, had better retain their Trump ‘good guy’ status – for our sake.
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