Analysts are calling for cooler heads to prevail, and not for immediate panic over the Trump administration’s decision not to give Australia an exemption to 25 percent tariffs on imported steel and aluminium.
When news dropped of the move, the ASX lost 1.5 percent of its value, and Labor cabinet ministers mobilised to denounce the tariffs.
While the tariffs are a direct hit on Australia’s $1 billion worth of U.S. metal exports, some economists believe the pain could be short-lived.
“It’s still possible we might get a reprieve as [the Trump administration’s] tariffs appear mercurial, and are not based on trade alone but on strategic or tactical advantages he can get in return for his threats to impose tariffs,” said Graham Young, executive director of the Australian Institute for Progress.
“Much of Trump’s actions are performative—meant to invoke a reaction. When he gets the appropriate reactions I suspect things will quieten down and relations will normalise,” he told The Epoch Times.
UNSW Professor Gigi Foster—also an American citizen—echoed this sentiment, pointing out that in Trump’s world, negotiations are never truly over.
“Dealmaking never fully ends,” she told The Epoch Times, hinting that Australia might yet secure exemptions or concessions.
Despite the significant dollar value attached to the affected exports—$378 million (US$237 million) for iron and steel products, and $503 million for aluminium—the broader economic impact might be limited.
These figures account for just 1 percent of U.S. steel imports and 2 percent of aluminium, while for Australia, it represents just 0.2 percent of the overall value of Australian exports in 2024.
“The U.S. buys only around 11 percent of our exports (compare that to over 30 percent that goes to China), and a large fraction of these U.S.-destined exports are actually services—only about 10 percent of our U.S. exports are comprised of the steel and aluminium that will be hit by the U.S. tariffs,” Foster said.
To Retaliate or Not?
While countries like Canada are retaliating, Australia could try to navigate its response more carefully.“We don’t know what the Albanese government was offering, but like the Ukraine, we have substantial rare earth deposits—perhaps there is a trade to be done there,” Young added.
He also pointed out that increasing defence spending could be a factor.
“Certainly, the next federal budget needs to realistically lift defence spending to 3 percent in the near term, not beyond the forward estimates.”
Young also warned against retaliation.
“We are a small trade-exposed economy where 46 percent of our GDP is exports and imports, whereas the U.S. is the largest economy in the world and has a much smaller trade exposure, with only 25 percent of its GDP involved in trade.”
Concerns Other Exports Could be Impacted
Independent economist Saul Eslake was concerned about other exports, such as meat and pharmaceuticals, could be next.Under Trump’s “reciprocal tariffs” doctrine, some interpretations suggest that Australia’s goods and services tax (GST) could be seen as a trade barrier, despite it applying equally to domestic and imported goods.
Eslake suggested Australia should push back.
Cold Wars and Hot Wars
Young believes the tariffs are driven by two battles.“The Cold War with China, meant to pre-empt a hot WWIII, and the hot war between the Republicans and the Democrats,” he noted.
A key goal, he argues, is to reshore manufacturing to the United States to counterbalance China’s dominance.
“The Allies won WWII because America was the manufacturing hub of the world. That mantle has shifted to China. Without manufacturing strength, the U.S. cannot win a Cold War.”
He said the world was gearing up for a war footing and nations needed to “gear up.”
“The U.S. is pivoting to the Indo-Pacific, and we are a vital part of the alliance, but we are going to need to do much more in the future than send a small detachment of troops, as we have managed to do in the more recent conflicts since Vietnam.”
Meanwhile, domestically, tariffs could be one way to help pay down the country’s debt, while also creating jobs.
A Test for Australian Diplomacy
Politically, the rejection of an exemption has put pressure on the Albanese Labor government, which had been lobbying for weeks now with several ministers flying to Washington D.C.Hopes for an exemption were initially raised when Trump assured Prime Minister Anthony Albanese that he would give “great consideration” to the fact the United States had a surplus with the United States.
With the latest turn of events, the federal opposition has already seized on the announcement.
In a post-announcement address, Dutton said his party was better placed to strike a deal with the Trump administration.
“I do believe that [if] there is a change of government, we will do a deal with the Trump administration, no question about that,” he said.
“We have a lot of jobs, not just in the defence and materials space, but also in financial services. We have a trade surplus for a reason—because we are a desirable destination for U.S. investment.”
Young believes one immediate step should be recalling Kevin Rudd as Ambassador to the U.S.
Can Australia Turn the Tables on Tariffs?
There are potential potential silver linings.If Trump’s reciprocal tariff regime imposes harsher penalties on other nations than Australia, local exporters could gain a competitive edge in the U.S. market.
Similarly, if other countries retaliate against U.S. imports with their own tariffs, demand for Australian goods could rise as an alternative.
Foster pointed out that if U.S. companies stop buying Australian steel and aluminium due to the higher prices, other nations, such as China or infrastructure-hungry economies, might step in as alternative buyers.
