Costly casualties of trade wars
Blow to billion-dollar pulse industry went under the radar, writes Jan Davis
PRESIDENT Donald Trump’s decision to impose new tariffs of 25 per cent on steel and 10 per cent on aluminium imports rattled some cages when it looked likely that only Canada and Mexico would be exempt from these tariffs and Australian exports would be caught up in the net.
Some experts argued that the tariffs would have only a small impact on the Australian economy, because Australia isn’t a large exporter of steel or aluminium. The value of Australian steel exports to the US is around $100 million a year. Furthermore, what Australia does export to the US is covered by a free-trade agreement.
However, there were outraged cries from the Australian steel industry and other sectors that might be affected by dumping by other producing countries priced out of the US. As a result, our government jumped to very quickly and managed to negotiate an exemption for our products — and that is a good outcome.
However, it seems not all tariffs elicit the same response from the federal government.
Out of the blue last year, the Indian government hiked tariffs on imports of pulses in the last few months by 40 to 60 per cent. In 2016-17, the Australian pulse industry export earnings were $1.33 billion. This is more than double the export earnings of the steel industry. And there are about 6500 pulse farmers, considerably more than steel workers.
The Australian pulse industry (pulses include chickpeas, beans and lentils) has received a much bigger trade hit than the putative steel restrictions the US Administration was toying with. The government made tut-tutting noises, but took no real action.
Why would that be? Surely all Australian industries should be equally valued?
These recent events have highlighted the fact that there are still many old-fashioned battles with respect to tariffs and other trade barriers still to be won. They should also concentrate our minds on what “free trade” means — and cause us to have a long hard look at how we respond to our trading partners.
When enacted, the Comprehensive and Progressive Trans-Pacific Partnership will supposedly eliminate 98 per cent of tariffs in a marketplace worth close to $18 trillion. However, with complex multilateral trade deals such as this, the devil is often in the detail.
And what is to stop partners taking unilateral decisions outside existing FTAs — as we’ve seen in these recent decisions by the US and India? Trump has made some big promises on trade. He threatened to scrap or renegotiate a number of existing free trade agreements, including the North American Free Trade Agreement, which he blames for job losses. He has even considered withdrawing the US from the World Trade Organisation. And he did not hesitate in moving the US outside a range of FTAs in imposing tariffs on steel and aluminium.
If President Trump makes good on his threats to impose a 45 per cent tariff on all Chinese goods, China may retaliate by imposing similar duties on US goods or putting restrictions on US investment. We’ll soon see. China is America’s secondlargest customer for agricultural exports. It sent more than US$20 billion of farm products to China last year — more than 15 per cent of all US agricultural exports.
On Friday, in retaliation to the steel and aluminium tariffs, China announced a list of 128 tariff measures on US farm imports, amounting to about US$3 billion. The list targets US farm exports like pork, wine and fruit. Then, over the weekend, the US announced that it would impose US$60 billion worth of tariffs on Chinese goods.
Whatever the outcome in this escalating trade war, there may be a silver lining.
China is Australia’s largest agricultural export market valued at $10.3 billion in 2016, up from $6.6 billion in 2011. Key products included wine, wool, beef, grains, dairy and sheep and goat meat, with those exports boosted by tariff cuts in the Free Trade Agreement that came into play in late 2015. Australia has benefited in the past when America has been blackballed in international trade dealings, and we may be able to gain ground again. If that happens, Australia could get a boost from trade with China, which would be looking for new trading partners.
We might get most favoured nation status in Chinese infrastructure projects and special trade zones. We might also be looked upon as a favourable supplier — particularly in food and energy security.
Maybe the Monty Python crew had it right, when they said we should “always look on the bright side of life”.
The Australian pulse industry has received a much bigger trade hit