Donald Trump rejects Australia's bid for exemption from steel and aluminium tariffs

By ABC

Australia will not be granted an exemption from US tariffs on aluminium and steel imports, the White House says.

US President Donald Trump had previously said he would consider excluding Australia from the 25 percent tariffs, which take effect on Wednesday.

But White House spokeswoman Karoline Leavitt has told the ABC:

"He considered it, and considered against it. There will be no exemptions."

Asked why, Leavitt said: "America First steel."

"If they want to be exempted, they should consider moving steel manufacturing here," she said.

Hopes for a reprieve from the tariffs were buoyed at first when Trump promised "great consideration" after a warm phone call with Anthony Albanese.

But they were later dashed when Trump's trade guru Peter Navarro said Australia was "killing" American aluminium.

Speaking to the ABC at the White House on Tuesday, local time, Navarro said Australia was among countries that "abused" tariff exemptions granted during Trump's first term.

"There were many country exemptions given, not just to Australia but to many other countries, and every single country abused those exemptions," he said.

"The collective result was to weaken the tariffs to the point that they simply didn't provide any protection anymore.

"So what the lesson from the first Trump tariffs has been is that exemptions to anybody are counterproductive. They don't work for the American people."

Asked if a future carve-out for Australia was still possible, he said:

"The policy is no exemptions, no exclusions and that will change if the president changes his policy. But there's a very good reason why 'no exemptions, no exclusions' exists as a policy.

"It's because when we were kind enough as a country to make those kind of gestures to our friends, they bit the hand that fed them, and that's not going to happen again."

Navarro has been accusing Australia of dumping cheap, government-subsidised aluminium into the US in breach of an agreement reached during Trump's first term, when Australia was exempted from similar tariffs.

A recent flurry of Washington meetings involving ambassador Kevin Rudd and treasurer Jim Chalmers had yielded little evidence of progress towards an exemption, and Foreign Minister Penny Wong admitted a fortnight ago Australia had a "hill to climb".

But Housing Minister Clare O'Neil said the Australian government was still "fighting with every single tool that we have available".

"We're still in a discussion with the US government about this," she told Channel Seven.

"So I'm not going to accept this as the situation yet. We still have a little bit of time and lots of discussions continuing to happen."

Australia argued that, unlike most countries, it usually imported more from the US than it exported there, a trade surplus for the US contrasting with the trade deficits it had with most other countries, and which infuriate Trump.

Then-prime minister Malcolm Turnbull successfully mounted the same argument during the first Trump administration.

But his recent criticisms of Trump resulted in an angry rebuke from the US president, who used social media to label the former PM a "weak and ineffective leader".

Albanese said on Monday the government would "continue to engage constructively… it is in Australia's interest, but it's also in the economic interests of the United States for Australia to be exempted."

The following day, Opposition Leader Peter Dutton said there was "a bipartisan position in relation to tariffs" but accused the government of being "scared" of Trump and failing to "pick up the phone".

The tariffs are part of a broader suite of projectionist measures implemented by the Trump administration.

Earlier on Tuesday, Trump said aluminium and steel imports from Canada would be subject to 50 percent tariffs - doubling the tariffs imposed on other trade partners as part of an escalating trade war between the North American neighbours.

Bigger problems than no exemption

Richard Holden, a professor of economics at UNSW, said it was "good that we've tried" to secure an exemption, but that the far bigger risk to Australia was the broader shock to the global economy from Trump's tariff program, seen in this week's market tumbles.

"I think the market's reaction is that this Trump administration does seem different from last time and it doesn't seem like it's all just bluster," he said.

Treasury and the Reserve Bank have both modelled scenarios for how US tariffs and likely waves of retaliation could reverberate in Australia, finding a modest negative shock to economic output.

Professor Holden said the effect of steel and aluminium tariffs themselves was even smaller.

"If you work in an aluminium smelter in Australia it's bad, and I'm not insensitive to that, but as a share of GDP, our aluminium and steel exports to the US are not huge. So in the aggregate it's bad news, but I don't think we should be too worried."

Australia exported roughly half a billion US dollars ($A793 million) worth of steel and aluminium to the US last financial year, a small fraction of the total.

And from the Australian side, US sales represent only one-tenth of aluminium exports, with most heading to Japan and South Korea.

Australia's major steel exporter BlueScope would also be partly sheltered by the fact it has a large American steelmaking workforce, while the Whyalla steelworks is currently government-owned, albeit temporarily.

"It would be better to have an exemption than not, for sure, but I just worry about poking the bear," professor Holden said.

"What I worry about is the real nightmare scenario if Trump or Navarro wake up to the fact that we sell a lot of iron ore to China… and then Trump gets on the phone and says don't sell any more."

Retaliation would be 'insane'

Professor Holden agreed with the assessment of Treasury, held broadly by economists, that Australia should not follow the lead of Canada and China in retaliating to any tariffs with tariffs of its own on American imports.

Last month, Treasury secretary Steven Kennedy warned Australia would "bear nearly all the cost", because the main effect of tariffs in any country was to increase the price local consumers pay for goods.

"It will seem counterintuitive to many, but responding to tariffs or trade restrictions with similar measures will only make matters worse," he said.

Professor Holden said retaliation would be "insane".

"I think there's a very big case that no matter what tariffs anyone puts on Australia, we probably shouldn't respond.

"Exports are very important to us as a small, open economy because we buy so many things from overseas that we can't possibly make here, and we benefit so much from what we export.

"If you retaliate, you're trying to inflict some pain back on them, so we'd have to pick things that we buy a lot of from the United States. What are we going to do, make computers and phones and big trucks way more expensive for Australians and maybe collect some government revenue?"

- ABC