By Karl Hoerr -
Australia may have been spared the worst of Donald Trump’s new tariffs but what does this latest round of trade sanctions from the United States President say about the legal framework for international trade? And how would Australia fare in an escalating trade war?
Charles Zhan is Partner and Head of International Trade at Moulis Legal in Canberra. He has advised private and public sector clients, with a focus on trade defence and cross-border transactions.
Like many other people around the world, he’s been considering the impact of Trump’s ‘liberation day’ policy announcement. Australia is among the nations to be slugged a new 10 per cent tariff on imports to the U.S. Other nations will fare much worse, with tariffs on them ranging from 17 to 49 per cent.
Zhan notes what he describes as the “cute marketing term” for the new tariff. “I think it’s actually called a ‘discounted reciprocal tariff’, as if it was some kind of gesture of kind.”
The new trade barriers are expected to affect the global economy, initially on the markets but also in other ways that might not become apparent for months. They represent a seismic shift in the way trade has been conducted for decades, but to some extent, would have been anticipated by governments across the globe.
President Trump singled out Australia over restrictions on U.S. beef coming into Australia. Australia set up biosecurity measures after the 2003 outbreak of bovine spongiform encephalopathy (BSE), also known as mad cow disease, in the United States.
The U.S. has become the biggest market for Australian beef exports, but the industry here insists there is no ban on U.S. beef. According to Meat & Livestock Australia, beef from cattle born and raised in the United States has been cleared for trade, but the U.S. has also requested access for beef from cattle raised in Mexico and Canada, something still undergoing assessment.
On some aspects of the trade issue, there seems to be a bipartisan approach in Australia, especially when it comes to not retaliating. “[A]ustralia is taking a cool-headed approach, which personally I think that’s a good approach so far,” says Zhan.
He argues it is the United States that stands to lose the most.
“Tariffs are by nature impoverishing … We’re going to see huge inflationary pressure in the U.S. economy.”
In terms of the legal options, there are exceptions in the U.S. Free Trade Agreement and World Trade Organisation (WTO) agreement, which might make things difficult. “[W]hen we look at the executive orders coming out of the White House, it’s got economic security, national security, those terms all over the place … We can expect (the) U.S. will use (that) basis as justification, as a defence,” explains Zhan.
He points out that the United States hasn’t abandoned the WTO process, as seen by its response to China’s challenge to the U.S. Inflation Rate Reduction Act. “[Y]ou do still have very active and quite meaningful engagement by the U.S. despite everything else that’s going on in that forum.”
What happens next could depend on what the rest of the world does. Charles Zhan notes the recent meeting between officials from China, Japan and South Korea, which could revive talks on a free trade agreement between those countries. “[W]e could see more collaboration in the Asian region and in that sense, I think Australia is well placed. We are in a region that’s still very fast growing,” he says.
Another issue which Zhan believes could have big implications for global trade is proposed action by the United States Trade Representative, to combat China’s dominance of the shipbuilding sector. The measures could see huge fees imposed on Chinese-built ships using U.S. ports. “[T]hat will have a massive, massive disruption to the entire global supply chain and how shipping is organised … Over 80 per cent of trade is done by shipping.”
How much all of this is about leverage remains to be seen. But it is clear that the norms have been rewritten, and trading relationships will be reshaped around the world.
