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Why Trump's tariffs will have little impact on Australian economy?

Team Veye | 04 Jun 2018

Why Trump's tariffs will have little impact on Australian economy?

The Trump administration has put tariffs on steel and aluminum imports from Canada, Mexico and the European Union, the latest action in a string of protectionist policies to crack down on alleged trade abuses. It was speculated before that Canada, Mexico, and Australia will be spared from the tariff. But, it’s just the Australia which has been spared as per the latest development.

However, it is not completely a win-win situation for the Australian Aluminum and steel producing companies including few other countries as the Trump administration will place quotas or volume limits on countries such as South Korea, Argentina, Australia, and Brazil instead of tariffs.

Peter Navarro, the top trade skeptic explained why the quotas are important on other exporting hubs -"If you don't put a quota on, then any country that can do whatever they want will become a trans-shipment point for any other country,".

“Assuming a quota system is implemented on select countries, supply-side constraints could develop (in certain products) in the second half as full-year quotas are disproportionately utilized in the first half,” Jefferies analyst Seth Rosenfeld said. This could surge the price of domestic products in second half of the year.

Is the exemption of tariffs and implementation of quota good news or bad news for Australia?

We don’t know yet. It will be clearer when the quota limits are available and we see a variation in existing demand and supply among USA and Australia.

However, the increased demand would lead to a price hike as different buyers would want to import these metals at the start of the year and would want to set up trade deals. In this scenario, Australian suppliers will have higher bargaining power compared to the buyers sitting in the USA and although they can trade under a limit, they will be able to increase the price of their products as the market dictates at that time.

Exporting just over A$400 million ($314.32 million) last year, Australia is a relatively small supplier of steel and aluminum to the United States. The new development on steel and aluminum may have only a small impact on the Australian economy, as Australia isn’t a large exporter of steel or aluminum. What Australia does export to the United States is covered by a free trade agreement. There could only be some detrimental effect if the newly placed quotas are thinner than the existing ones.

 

Top Australian exports to the United States 2016-17

 

MERCHANDISE

VALUE OF EXPORTS

1

Beef

A$1,493,923,000

2

Meat (excluding beef)

A$934,918,000

3

Aircraft, spacecraft & parts

A$855,683,000

4

Pharmaceutical products

A$658,874,000

5

Alcoholic beverages

A$485,189,000

 

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