If Trump’s tariffs blow up our steel industry, why are we saving Whyalla?

Australia’s panic about the Trump-imposed crisis in our steel industry is as misdirected as it is overblown. Our meagre steel exports to the US make the threat of Trump’s 25 per cent tariffs wildly exaggerated in terms of economic significance.

Sure, tariffs introduce distortions – but so do governments that prop up uneconomic businesses.

The combined value of our steel and aluminium exports to the US is less than $1 billion. That’s less than half the $2.4 billion that the federal and South Australian governments have promised to bail out the chronically loss-making Whyalla steelworks.

President Donald Trump’s no-exemptions tariffs are unnerving Australian companies and investors.Credit: AP

Taxpayers probably won’t feel a ripple from the US tariff decision. But if the Whyalla rescue plan was confounding a few weeks ago, it now seems ludicrous in the light of Trump’s import levies.

The bailout looks increasingly like a political decision galvanised in the lead-up to an election.

Of course, the government still hopes to find buyers for Whyalla, which has been bankrupted twice in less than a decade. But any would-be buyer would surely require the steel mill’s losses to be underwritten by the government, so it’s bound to be a poor deal for taxpayers.

Sure, tariffs introduce distortions – but so do governments that prop up uneconomic businesses.

The bigger issue around Trump’s position on tariffs isn’t about the levies imposed on Australia but the ones he imposes on China, our biggest export market. They introduce the very real spectre of the billions of tonnes of steel that China once sold to the US flooding other markets, including Australia’s.

This explains why our largest steelmaker, BlueScope, is desperately lobbying for Australia’s dumping police to lift their game. The government needs to ensure it remains vigilant if China is employing predatory pricing to dump steel on Australian shores.

China’s potential next moves represent a threat to even well-managed and well-capitalised steelmakers such as BlueScope.

And, of course, the repercussions for weaker steel production in China also have a ripple effect on Australia’s large iron ore miners that supply China with the raw ingredients to make steel.

The annual value of Australia’s exports of steel and aluminium to the US is worth about three days of Australia’s iron ore trade with China, Deutsche Bank says.

Hence, lower demand from China would have a significant impact on the Australian economy.

The good news is that Albanese won’t attempt any comeback in kind to Trump – or he may end up looking like the premier of Canada’s Ontario province, Doug Ford, whose retaliatory tariff threat lasted a mere moment before it was crushed by Trump’s promise to up the ante by doubling US tariffs on Canada.

Ford learnt the hazards of battling with Trump, who appears to have no boundaries and is renowned for always bringing a gun to a knife fight. The US president retreated to his original 25 per cent tariff plan after the provincial government backed down, realising it wasn’t a fight it would win.

Regardless of the significance (or lack of it) to Australia’s economy, Albanese is on the money when expressing some righteous indignation by calling Trump’s move “completely unjustified”.

“This is against the spirit of our two nations’ enduring friendship, and fundamentally at odds with the benefit of our economic partnership that has delivered over more than 70 years,” Albanese said on Wednesday.

“Australia has no tariffs on goods from the United States and, of course, we have [a free-trade] agreement with the United States.”

This clearly echoes the sentiment of Australians who feel a sense of US betrayal.

But it’s in superannuation balances that Trump’s tariffs hit Australians directly.

The threat of a US recession, which Trump is no longer explicitly ruling out, and the fear of reigniting inflation has triggered collapsing share prices on world equity markets.

Australia’s sharemarket has fallen more than 5 per cent this year, wiping out more than $35 billion in shareholder funds on Wednesday alone.

This represents far greater damage to Australians than a US tariff on steel and aluminium.

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