Donald Trump’s trade war prompts market angst

After moving at breakneck speed to nominate his White House and cabinet teams, Donald Trump, still almost two months from his inauguration, has promised to impose stiff trade restrictions from his first day in the Oval Office. Canada and Mexico, the US’s biggest trading partners, will pay a 25 per cent tariff on all goods coming into the US. China will be “an additional 10 per cent tariff, above any additional tariffs”, he announced.

The president-elect previously has pledged to impose tariffs of 60 per cent on imports from China. And with the US buying the lion’s share of Canadian and Mexican exports, US tariffs, which were part of Mr Trump’s campaign platform, have the potential to damage the international economy – including, across time, that of the US itself. Australia, which has huge exposure to the Chinese economy, could suffer collateral damage in any US-China trade war, especially through declining demand for iron ore and other commodities. News of a looming trade war prompted falls in shares and the dollar on Tuesday.

Mr Trump linked his announcement to action on border security, immigration and drugs by Mexico and Canada, which suggests the tariffs could be tempered depending on action on those issues. But it creates a challenge for Anthony Albanese and his ambassador to the US, Kevin Rudd, to argue Australia’s case for exemptions as effectively as possible between now and the third week of January. In hindsight, a detour by the Prime Minister to Mar-a-Lago after the G20 summit might have been worthwhile. In 2018, when Mr Trump imposed tariffs on steel and aluminium imports in his first term, he agreed to an exemption for Australia after lobbying by Malcolm Turnbull and discussions on regional security and trade.

For Australia, a trading nation with a budget driven heavily by export earnings, free trade and rules-based trading practices need to be at the forefront of our bilateral and multilateral relationships. The nation has a strong case to argue about the risk of China using any trade war to strengthen its economic relationships across the world, including in the Indo-Pacific, which could increase its strategic influence against the interests of the US and Australia.

China’s ambassador to Australia, Xiao Qian, lost no time pressing the point from Beijing’s perspective at his press conference on Tuesday. “There is no reason for us to compromise our respective national interests for the sake of a third party,” he said. “I look forward to a constructive, productive relationship between China and Australia, irrespective of what has happened in other parts of the world.” After China’s punitive sanctions against Australian wine, seafood, cotton, barley, meat, coal, wood and other commodities that cost the national economy $20bn a year, it would be difficult to take seriously support for free trade by the regime of Xi Jinping. Mr Xiao’s claim the dispute was “not something the Chinese imposed”, pointing to Australia’s ban on Chinese telco Huawei (essential for security reasons), was self-serving nonsense. While continuing China’s charm offensive towards Mr Albanese, Mr Xiao could not resist baring the communist regime’s ugly teeth, urging Australia to back the “peaceful reunification” of China with Taiwan.