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DANIEL:

From Schwartz Media, I’m Daniel James. This is 7am.

Donald Trump's trade war is escalating as his wide ranging tariffs take effect.

Australia had hoped to avoid a 25% tariff on our steel and aluminium, but we now know there will be no exemptions.

While Canada and the EU are retaliating, Anthony Albanese's focus is on trying to stem the damage by arguing that other large industries that would impact the Australian economy much more should be immune.

But as Trump gets more aggressive, his decisions on trade could spill into every aspect of our alliance.

Today, managing editor of The Saturday Paper Emily Barrett, on what the tariffs mean for the Australian economy and what the government can do about it.

It's Friday, March 14th.

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DANIEL:

Emily, Trump's tariffs on Australian steel and aluminium have just come into effect. We've heard a lot recently about the government's efforts to avoid them. So, what have you made of Anthony Albanese's response to the news?

EMILY:

Up until this moment, we know that Albanese has been trying to avoid providing what he calls his running commentary on the Trump administration's decision. But this moment marks a big change because it has an impact and a very direct impact on Australia's interests.

Audio Excerpt - Anthony Albanese:

“The United States decision to impose tariffs on Australian steel and aluminium as part of a global decision are concerning.”

EMILY:

And he's described as we've all heard, the decision is entirely unjustified.

Audio Excerpt - Anthony Albanese:

“This is against the spirit of our two nations enduring friendship and fundamentally at odds with the benefits that our economic partnership has delivered over more than 70 years.”

EMILY:

Albanese hasn't seen up until now, obviously any benefit in criticising Trump. And that's partly because nobody wants to poke this particular bear. You know, the US is the world's largest economy. We have a very strong and close relationship.

But as more countries are taking what at least looks like principled stances against Trump, the voters have been responding pretty positively. We've certainly seen this in Canada, right, with Mark Carney. It's easy to think that there might be a tipping point where the consensus, whether it's supported within the US or not, a sort of a global consensus, will become more openly critical of the US as a superpower because its policies now are sort of they're proving destructive economically and as we're seeing geopolitically.

DANIEL:

Well, let's talk about these tariffs, 25% on steel and aluminium. How much of an impact will they have?

EMILY:

Yeah, this is easy to overstate. It's something that Albanese's pointed out that this is actually not a large amount of our exports.

Audio Excerpt - Anthony Albanese:

“Australian steel and aluminium exports to the United States represent Less than 0.2% of the total value of our exports. Neither is in the top ten of what Australia sells to the United States.”

EMILY:

Our markets in South Korea and Japan and other parts of Asia are much, much larger. So we could sell more to those sorts of markets, to those consumers.

So just as a sort of thought exercise, we contrast this with what happened with Chinese tariffs in 2020 after Scott Morrison started saying that we should investigate the outbreak of COVID 19. China is by far our biggest trading partner. Those tariffs applied to coal, agricultural products, cotton, lamb, lobsters, timber and wine. So the amounts were massive that ranged from 40% on cotton to more than 200% on wine. And those tariffs were in place for 3 to 4 years. That's a big impact. That's extensive damage.

So, you know, this is particularly interesting given that we've seen Peter Dutton going very hard on this as a political issue, despite the fact that, you know, we've just come through this far more damaging trade war with China.

DANIEL:

So those tariffs on steel and aluminium might not be as significant as some we've seen before. But we know the government had been trying to get out of them nonetheless. So why didn't we get an exemption as hoped?

EMILY:

Yeah. So Trump had said, as we know that he was, he would consider excluding Australia from the 25% tariffs after that conversation that he had with Albanese. But his spokesperson, Karoline Leavitt, said that he considered it and he considered against it, so there will be no exemptions.

Audio Excerpt - News Reporter:

“ Karoline Leavitt says the decision has been made to put America's steel first, and Australia is welcome to move its still manufacturers to the United States.”

EMILY:

We have to keep in mind who's advising Trump here. His senior counsellor on trade and manufacturing is Peter Navarro. He's an extremist in terms of his economic view of the benefits of tariffs. He's a he's a real outlier and he's an aggressive hawk on China. He was actually sanctioned by China after the first Trump administration. And he believes that exemptions from tariffs under that administration were what made the strategy fail. And it clearly did fail when you consider the trade deficit certainly wasn't corrected and the budget wasn't repaired.

Audio Excerpt - Speaker:

“The Biden administration was there was over 300,000 product exclusions. And virtually every country got it, some kind of exemption from that. And it took us back down.”

EMILY:

We know that our government nevertheless doesn't want this on its watch, and it has been working on this constantly. There have been efforts by Trade Minister Don Farrell. Foreign Minister Penny Wong, Treasurer Jim Chalmers. They've all been on recent trips to the US. And Albanese obviously had his call with Trump.

And we've heard a lot about the fact that Australia has a trade deficit with the US. But the lack of a trade deficit isn't the reason that we weren't exempted. It has more to do with the fact that America really had decided that it was going to pursue this blanket policy in order to see it succeed.

And while our industry for steel and aluminium will be able to weather this, the bigger effect for Australia is the fact that Trump's really aggressive use of tariffs across the board, if it keeps up, will hurt the US economy and it will hurt the global economy.

DANIEL:

Coming up after the break. Is America headed for a recession? And what will that mean for us?

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DANIEL:

Emily, Donald Trump has been announcing and reversing tariffs left, right and centre. How is he using them as a tool? And what's he trying to achieve?

EMILY:

Yeah we actually need a tracker on this because Trump's application of this policy is really erratic. And by the time this airs, you know, things could have changed again, because he seems to have created this pattern of stepping up tariffs, stepping off them. It's creating radical uncertainty. And one thing that we know that markets don't like is uncertainty, because that makes it difficult to plan investments in large projects, the kinds of things that actually create growth.

Audio Excerpt - News Reporter:

“The stock market in free fall again today, opening more than 50 points down and sliding even further after the president announced increased tariffs on Canada.”

EMILY:

That is one point in which this is being counterproductive. So far, what we're seeing from Trump is that he's primarily targeted the US's closest allies with tariffs. So Canada has 25% on most imports, although it's a lower rate on energy. Mexico has 25% also on all imports, all aluminium and steel as we know now is at 25%. And there are further levies that are supposed to take effect at the beginning of April on agricultural products and foreign cars.

So in February, if we look at what he's done with China, he imposed a 10% tariff. And that's been up another 10% this month.

So ultimately what Trump loves about tariffs is that it's a weapon that he can wield without having to go to Congress purely by executive order. So it's essentially his power.

So Trump has framed the tariffs as a way to sort of protect American industry and create jobs and and bring back manufacturing industries in the US. That's where he sees as kind of the seat of American strength.

DANIEL:

So the idea of bringing back manufacturing jobs to the US is a worthwhile goal on the surface, and one that millions of Americans were voting for when they voted for Trump. So what are the chances of that actually working?

EMILY:

Manufacturing entirely in America? Across many industries is simply more costly. Wages are higher in the US now. A lot of these industries are less competitive globally than they actually need to be if they want to, you know, supply their own needs and they rely heavily on cheaper inputs from elsewhere in the world.

Manufacturing is really capital intensive. It it takes more than tariffs also to fix it. If you look at the trajectory of manufacturing in the US over over decades, jobs for manufacturing as a share of total employment went from about 30% in the 70s to just over 8% now.

The bigger question really is whether this is actually the future that America needs. There are ways in which Biden was trying to sort of configure a manufacturing future for America that was based around the green transition. So that's where you could get more high skilled and low skilled jobs pulling into this kind of grant project. He saw subsidies and sort of government support as being useful for this. These were legislated under the Inflation Reduction Act. And that's a national project that was already underway. And it was full of jobs.

Now what Trump wants to do is trash that Inflation Reduction Act. He wants to wield big tariffs. He's taking America essentially back to a failed project of sort of the 1930s. And that actually deepened the Great Depression. It wasn't a successful strategy the first time around.

But interestingly, the way he's sold tariffs to people, you know, not a lot of people are very persuaded by the effectiveness of tariffs and for good reason. But the way he's sold it is by saying that they will make the US a lot of money. He seems to think that this is going to correct the country's trade deficit and help with its budget, and neither of these things are true. Levies on tariffs are not paid by exporters. They're paid by importers who tend to pass them on to consumers wherever they can. So they raise prices in the country that imposes them. And that in turn is inflationary.

And coupled with a slowing economy, we could see stagflation, which is when inflation is rising but growth is slowing. We now have Trump actually refusing to rule out a recession for the US. He went on Fox News, which was interesting earlier this week, saying that the economy will get worse before it gets better.

Audio Excerpt - Reporter:

“Are you expecting a recession this year?”

Audio Excerpt - Donald Trump:

“I hate to predict things like that. There is a period of transition because what we're doing is very big. We're bringing wealth back to America. That's a big thing. And there are always periods of, it takes a little time. It takes a little time. But I think it should be great for us. I mean, I think it should be great.”

DANIEL:

So how significant is that to hear Trump preparing Americans for a potential recession?

EMILY:

It's very significant. This is not going to be a popular thing. And Trump loves to protect his popularity. So he's clearly got to say something about the fact that all of Wall Street is downgrading their growth forecasts. Markets are sliding and we've seen the worst declines in markets actually since the height of the inflation surge in 2022.

DANIEL:

And if America does go into recession, how would that affect Australia?

EMILY:

So when the world's largest economy suffers, so does everyone else to an extent.

Our markets do tend to follow the US. So we have seen declines here. And of course, then there's the risk of more tariffs if the US chose to target our pharmaceutical products. Those are bigger for us than aluminium and steel certainly.

It's important, though, to remember that Australia's fortunes are pretty dependent on our nearest neighbours in Asia and on the strength of our own economy. So we've weathered American storms before in the in the global financial crisis, we didn't have a recession, that was really we were a rare country to escape it. But that's because the government offered enough stimulus to support people, and the central bank was able to cut interest rates when it needed to.

DANIEL:

So, Emily, with all of that in mind, what can the government do to protect their economy from the worst of it?

EMILY:

Right. So when it comes to dealing with tariffs, Australia has historically favoured this diplomatic negotiation over retaliatory trade measures. We know they don't work. If you look at the way that we dealt with the Chinese government when it applied those tariffs up to sort of 218% on Australian wine, the government sought a diplomatic solution rather than a broader trade war. And that ultimately did work out for us after some pain. We know that negotiations also are still ongoing. So Penny Wong has said that we could use our critical minerals, of which we have vast supplies, as a sort of a bargaining chip. So we're not without some leverage.

We're very unlikely to see our government retaliate with counter tariffs, as the EU and Canada have done. But there are other things to think about here. And let's keep in mind that Trump is a highly transactional president. There is a possibility that this could spill over into the broader relationship beyond our trade relationship. It's possible that Trump may try and leverage security and strategic issues with Australia. The concern that some people have expressed is that we might be pushed to concede some of our foreign policy independence, for instance, does that mean that the US could push for us to take a more aggressive stance on China, in return for lighter treatment on trade? You know, Albanese's talked a lot about our friendship with the US, but definitely as we're seeing this play out. This isn't how friends act.

DANIEL:

Emily, thank you so much for coming on.

EMILY:

Thanks so much for having me, Daniel. It's great to talk.

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DANIEL:

Also in the news,

Premier Jacinta Allen is facing criticism over her pledge to make Victoria’s bail laws the toughest in the country.

The state government plans to undo the loosening of bail laws recommended by the coroner following the death in custody of Gunditjmara, Dja Dja Wurrung, Wiradjuri and Yorta Yorta woman Veronica Nelson - who died while on remand for a crime that would not have led to jail time.

Nelson’s mother, Aunty Donna Nelson, said the move is an “insult to my daughter Veronica’s memory”.

And, incidents of Islamophobia have doubled over the past two years, according to a new report from the Islamophobia Register.

The register found that around half the incidents were recorded in New South Wales which has the biggest Muslim communities in the country. It also found that women and girls were the victims in three quarters of the attacks.

The researchers behind the Register said this year represented the biggest rise in Islamophobic incidents since it began collecting reports in 2014.

I’m Daniel James, this is 7am. We’ll be back with a special Saturday edition of 7am tomorrow. See you then.

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