Donald Trump's steel tariffs trigger trade war, recession fears

The Turnbull government could face pressure to pre-emptively toughen barriers to shield local industry from a glut of cheap foreign metal, increasing risks Australia could be dragged into a global trade war after Donald Trump announced hefty tariffs on steel and aluminium exports to the US.

As Mr Trump's announcement drove the local market and Wall St down, Trade Minister Steven Ciobo warned it could spark a recession while local experts claimed South Korean steelmakers being squeezed out of the US were already eyeing off Australian sales.

With China, Canada and Europe threatening retaliation, the Turnbull government is scrambling to stop the White House walking away from assurances Australian steel and aluminium exports to the US would be exempted.

Mr Ciobo said he hoped to speak with US Commerce Secretary Wilbur Ross in the next day or two to see whether the promise will be honoured. He labelled Mr Trump's announcement of a 25 per cent tariff on steel and 10 per cent on aluminium "disappointing".

"The imposition of a tariff like this will do nothing other than distort trade and ultimately we believe will lead to a loss of jobs," Mr Ciobo said.

Mr Ciobo said it was in no-one's interest for retaliation by other steel producing nations.

"If we see a breakout of action and reaction from major economies, the only thing that will arise from that will be a slowdown in economic growth and over time, if it got bad enough, we could see for example a recession – and we know the consequent impact of that," he said.

Australia's steel and aluminium exports into the US are dominated by BlueScope and Rio Tinto respectively. BlueScope exported about $274 million of steel that underwent further processing in west coast mills, while Rio's Canadian smelters produced about $276 million of aluminium for the US market.

The Turnbull government has been pushing for an exemption for Australian steel and aluminium after the Trump government announced the review of tariffs. Mr Turnbull and Finance Minister Mathias Cormann believed they had clinched an agreement on the sidelines of the G20 by lobbying Mr Trump and US Treasury Secretary Steven Mnuchin directly.

But last week in Washington DC a worried Mr Turnbull and Mr Ciobo continued to press Mr Trump and the administration for the exemption amid signs the White House had gone cold on the idea of any carve outs.

As part of fierce lobbying efforts that includes officials here and in Washington, the Turnbull government is emphasising that Australia produces a relatively small amount of steel and aluminium for the US.

"In terms of Australia's steel exports, they account for about 0.8 per cent. Aluminium for about 1.5 per cent of the US market, so they are very modest," Mr Ciobo said.

Australia has also made the case that as a strong US ally it deserves special consideration. With Australia delicately balanced between China and the US, the uncertainty over Australian steel comes just days after The Financial Review revealed US intelligence officials briefed Mr Turnbull against the involvement of Chinese telecommunications company Huawei in Australia's 5G network.

Opposition Leader Bill Shorten said Mr Turnbull needed to lock in the exemption for Australian steel and aluminium exports but the real issue was the threat posed to the local industry's viability from cheap imports displaced by the tariff hike.

"What steps is he [Mr Turnbull] doing to protect Australian jobs and Australian businesses? Because if that steel and that aluminium product can't go to America, we've got one of the most open markets in the world and I just want to make sure we look after the Australian jobs," he said.

Assistant Minister for Jobs and Innovation Zed Seselja indicated the government was prepared to protect local industry from cheap foreign exports.

"The Coalition is committed to a strong anti-dumping regime that delivers a level playing field for Australian manufacturers and producers whilst supporting jobs, business growth and competitiveness," he said.

"We will respond strongly within our legal framework to any attempts to dump steel and aluminium in Australia."

Trade lawyer Daniel Moulis said Australia may feel compelled to pre-emptively toughen trade laws to ensure steel diverted away from the US market is not dumped in Australia.

But he cautioned this may contravene international trade laws at a time when Australian steel maker BlueScope was in "rude health".

"The temptation to take pre-emptive action will be strong," he said.

Australia is currently reviewing tariffs on Chinese galvanised steel, with a review of hot rolled plate and structural steel to follow and Mr Moulis said the Trump action could strengthen the push to roll-over these duties for another five years even though the local industry was in good shape.

"Trump's announcement puts the heat on Australia's anti-dumping administration," he said.

Despite Australia's free trade rhetoric Canberra was the world's equal fifth largest user of anti-dumping provisions under the World Trade Organisation in 2016, alongside the likes of highly protectionist Pakistan.

And while Mr Turnbull has been a strong advocate for free trade publicly, he has quietly presided over the strengthening of anti-dumping laws, which critics argue amount to protectionism.

David Roberts, the general manager of Sydney steel trading firm Sanwa, said there would definitely be knock-on effects for Australia from the Trump action, as milled steel from across the region would be looking for a new buyers.

He said already South Korean mills, which had predominantly sold to the US, were seeking out buyers in Australia.

"When countries lose export markets they go looking for others," he said via phone from China.

He said there would be a temptation for regulators to take pre-emptive action to ensure none of this steel was dumped in Australia.

"I hope that does not happen but the temptation is certainly there," he said.

Rating agency Moody's said at this stage it did not expect any significant impact on the credit profile on Asia-Pacific countries as sales of steel and aluminium were absorbed elsewhere but warned there were prolonged dangers.

"Longer term, tariffs on steel and aluminium could signal a marked deterioration in global trade relations to the extent that they are followed by other measures from the US and potential responses from other countries," Moody's sovereign risk group managing director Marie Diron said.

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