Trade war: Q&A with Darryl Daisley

By Darryl Daisley - April 6, 2018

With the US and China engaging in tit-for-tat threats of tariffs, the world seems poised to enter a damaging and unpredictable trade war. Pitcher Partners Director, and specialist in free trade agreements, Darryl Daisley looks at what the escalation means for Australian businesses.

How closely should Australian businesses be monitoring the threats of tariffs from the US and now China?

Australian businesses should be closely monitoring the impact of this new trade war between the US and China. The flow on effect to global financial markets has been felt already and is leading to a more volatile financial market.

Some of this is not new: US President Donald Trump flagged early in his presidency that he was willing to challenge the ongoing globalisation of trade at the expense of US companies and its workers. His decision to remove the US from the TPP was the first step and the recent announcement on steel and alumina imports caused immediate consternation from many major trading countries (including Australia). This next phase has ramped up the rhetoric and has initiated tit-for-tat trade reprisals from China. 

The US initially listed products and sectors that will be subject to tariff increases including aerospace, telecommunications and machinery, and this approach targets the high-tech industries seen by China as key to the country’s economic future. Beijing has responded (at least by early April) with a further 106 products, including the biggest US exports to China, American beef, whisky, passenger vehicles and industrial chemicals. The US has now looked to expand its list of goods to incur tariffs in retaliation.

What is the potential fall-out for Australian businesses if the tit-for-tat trade war escalates?

WA-based company Simcoa was almost an early casualty of a more protectionist US trade policy, with the US Commerce Department finding in October last year that silicon metal from Australia, Brazil, Kazakhstan and Norway had been “dumped” at less than fair value. It alleged subsidies by foreign governments were to blame.

In particular, the US cited Australia’s Federal R&D Grants, differing mining royalty rates between states, and some relief from Renewable Energy Target Program for Simcoa as an emissions-intensive, trade exposed company.

Simcoa has now appealed directly to the US International Trade Commission, who found the company and other foreign exporters of silicon had not materially injured American competitors as claimed by US Commerce Department. That action removed the possible imposition of what would have been a 51% dumping duty, but not before causing some tense weeks for the employer of 180 people. It’s the kind of action that means any Australian exporter to the US — even if they are not exporting goods covered by tariffs — should be closely monitoring the anti-dumping and countervailing duty actions being undertaken by the Trump administration.

Are there any potential Australian winners out of a battle for trade?

The first thing to understand is that tariffs won’t kick in right away. The US government is inviting public comment on its trade sanctions through May 11 and will hold a hearing on the plan May 15. China has set no date for its 25 per cent duties to take effect, saying it is waiting to see what President Donald Trump does.

In the meantime, though, Australian exporters should make themselves aware of the products that are encompassed by the potential tariffs (both those inbound into China and inbound into the US). China seems to have picked US products to penalise that are able to be replaced from other markets, such as soybeans from Australia.

Does the Australia US Free Trade Agreement provide any comfort or options for Australian businesses caught up in the steel tariff decision?

The Australia US Free Trade Agreement (AUSFTA) has been in place for many years and in December officials from both sides reaffirmed the importance and strength of the agreement, which underpins the bilateral economic relationship between Australia and the United States. In particular Vice President Pence, recently in Australia, described AUSFTA as a model for a “mutually beneficial agreement” and a model for US dealings with the world.

Under the AUSFTA, all tariffs have been eliminated for imported products from the US into Australia and most tariffs have been eliminated for exported products from Australia to the US. What the Simcoa action shows, however, is that where the US Administration believes there may be dumping of specific products (such as steel or alumina) it will be essentially up to the Australian Government to challenge the view on a state-state basis or left up to the individual company to challenge, which could come at significant cost.

What should an exporting business be doing right now to assess their risk and mitigate it?

 If you are an Australian business that exports, you should be maintaining a close watch on these trade matters to gain an understanding of

  • Direct impacts, such as the imposition of any duties or a change in the goods subject to dumping duties;
  • Indirect impacts, such as increased freight costs that could arise if trade is slowed down; or
  • New opportunities into existing markets, such as the potential opportunities for beef, wine or soybeans into China.

Pitcher Partners can help you assess the risks your exporting business might be facing, or identify emerging opportunities for your goods in a turbulent trade environment. 

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