Free-trade agenda is bigger than steel and aluminium

Donald Trump’s decision to push ahead with a 25 per cent tariff on steel and aluminium from Australia presents a sharp diplomatic problem for close allies. But at some point the reality must be faced that this is a competition for heavy industry and manufacturing that cannot be won by trying to outbid the US’s new protectionist instincts. The real target of the Trump tariffs is not Australia per se. Neither steel nor aluminium are nationalised industries here, and that should continue to be the case. When the US complains that Australia “bit the hand that feeds them” by increasing its metal exports to the US under a previous tariff exemption, it is industry, not government, that did the exporting. Trade flows dictate that big multinational companies will re-route production to places where market access is most beneficial. Australia does not have export controls on commodities and would be foolish to consider them now.

This does not mean US tariffs will not hurt Australia. Or that steel and aluminium will be the end of the story. Attention already is turning to other commodities, and Australia’s ambitions to be a preferential destination for the US in the race to develop new rare earths and minerals is challenged by a new deal being struck between the Trump administration and Ukraine. As David Pearl opined on Wednesday, a decision to proceed with tariffs should be taken as a much-needed wake-up call for Anthony Albanese and Peter Dutton that, for better or worse, Mr Trump is upending the world as we know it. Global financial markets are showing signs that investors certainly are starting to get that message.

The national interest is that we maintain our capacity to produce the products that are ubiquitous to modern life. As was the case when China put restrictions on the import of Australian products, our efforts must be directed towards diversifying markets. Given the relatively small size of our steel and aluminium exports to the US, this should not be an existential issue. But the challenge is made more difficult by government policies that put obstacles in the way of producers that they do not face in other parts of the world. Chief among them is higher energy prices as a result of climate policies. Steel and aluminium are energy-hungry commodities, exactly the sort of carbon-intensive, trade-exposed industries most at risk from abatement policies. The federal government’s hope is that a natural advantage in sun and wind will put Australia at the front of the queue in producing lower-emissions steel and other metal products that will be in demand, particularly in Europe. The difficulties being experienced with commercialisation of hydrogen at scale provide evidence that this may be more difficult in practice than on paper.

Mr Albanese had no choice but to criticise the US decision on tariffs as “against the spirit of our two nations’ enduring friendship”. But there would be little value in withdrawing an offer of a state visit for the US President or applying reciprocal tariffs on the US, which would only push up prices for Australian consumers and increase inflation. Business Council of Australia chief executive Bran Black is right to call for caution. “Fundamentally, we’re a trading nation, and so opening up and retaining unimpeded access to global markets increases our economic growth and supports local jobs,” Mr Black said.

With Mr Trump back in the White House it was always going to be a bumpy ride. Making America Great Again will not always suit its allies. But, in the Trump vernacular, governments can only play the cards they have. We must continue to argue forcefully for free trade while being careful not to squander our ace card, the potential for abundant supplies of cheap energy for industry.