We must act quickly but smartly on trade tariffs

Donald Trump’s imposition of a blanket 25 per cent tariff on steel and aluminium imports into the US follows a now-familiar pattern.

That pattern is for a headline-grabbing announcement from the US President designed to bring aggrieved parties to the negotiating table.

On paper, Australia has a good case to argue. We are a close ally with a demonstrated willingness to invest in US defence capability through the AUKUS partnership and, unlike many other nations, we have a trade balance that falls in the US favour. These are metrics Mr Trump understands.

On the downside, the Albanese government has yet to demonstrate that it has the skills or personnel to engage successfully with the Trump administration. The federal government would beg to differ but now is the time to prove it.

The Prime Minister has spoken with the US President only once immediately after Mr Trump’s election victory, but he told question time on Monday that he had a telephone conversation scheduled to discuss tariffs and other issues.

Trade Minister Don Farrell has yet to speak with incoming US Commerce Secretary Howard Lutnick. Unlike Joe Hockey, Kevin Rudd is unlikely to play a round of golf with Mr Trump anytime soon.

Mr Trump’s agenda has plenty of pitfalls for a trade-exposed country such as Australia. At a macro level, high tariffs are a de facto tax on Americans that will drive higher inflation and damage global growth.

The immediate response of money market traders was to strengthen the greenback, which pushed the Australian dollar lower.

This is good for exporters but, if sustained, will increase the cost of imported consumer goods. On a sector basis, our exports of steel and aluminium to the US are not large in dollar terms. But both are global businesses.

Any reduction in Chinese steel exports will likely hit our iron ore and coking coal exports. Australia has enjoyed a natural advantage in aluminium because of our abundant supplies of bauxite and alumina refining capacity and, until recently, cheap and abundant power. The Albanese government has just announced a $1bn production subsidy to encourage aluminium-makers to stay here if they use renewable energy to produce their product.

A similar push is under way for steel production. This is all geared to a world pre-Trump in which Europe is planning trade sanctions of its own to punish goods with high greenhouse gas inputs.

With Mr Trump pulling the US out of the Paris Agreement and prioritising oil and gas production, it remains to be seen where that will all end up.

Wherever that may be, Australia is exposed on all fronts. There may be some short-term benefits from exports from third countries being directed away from the US to avoid tariffs. But the pressure is on for the world’s major companies to think harder about the US as a manufacturing and production base.

On the other hand, European carbon sanctions will have an impact on global trade flows and Australia must be prepared. That developing nations will likely be given preferential treatment and market access in Europe will make life harder for Australian producers. As will the likelihood that Mr Trump will negotiate favourable market access for US producers into markets we currently supply, notably China, to trade off tariffs.

If Mr Trump’s sanctions in his first term are any guide, this will be particularly difficult for our farmers and primary producers. The federal government must act decisively. It must find the right personnel, approach and language to engage Mr Trump.

Above all it must stick to our enduring national interest. That is for free and fair trade with clearly defined rules that are fairly applied across the board.