The announcement, made to reporters en route to the NFL Super Bowl in New Orleans, led to an immediate decline in the Australian share market, with the benchmark ASX 200 falling by 0.5 per cent at the opening bell.
The US President said he would make the official announcement on Monday, but that it would include 25 per cent tariffs on all steel and aluminium imports into the US, followed by a further announcement of reciprocal tariffs on Tuesday or Wednesday.
“Any steel coming into the United States is going to have a 25 per cent tariff,” Trump said.
Commenting on Trump’s latest move, Stephen Innes, SPI Asset Management, said it “isn’t merely another trade skirmish”, rather “it’s an escalation of his ‘America First’ trade doctrine where ‘no country is off-limits’”.
“This high-stakes gamble could disrupt global supply chains,” Innes said, noting that if Trump maintains his “hardline stance”, Asian economies will be the first to feel the impact.
Australia’s trade relationship with the US is relatively inconspicuous, potentially shielding it from direct targets, with the US importing some $808 million worth of Australian steel and aluminium in 2024, equating to just 0.03 per cent of gross domestic product.
Australia previously avoided the threat of tariffs during the first Trump administration from 2017 to 2020, as the President exempted Australia along with several other countries, instead focusing most of his wrath on China. However, it remains uncertain whether the same outcome will occur this time.
Speaking to InvestorDaily, AMP’s Shane Oliver said Trump’s latest announcement was no surprise, as the President had indicated a few weeks ago that he would introduce tariffs on various goods, including steel and aluminium.
“He has said it includes ‘everyone’ so presumably that includes Australia,” Oliver said.
“There is a good chance we will be exempted from such tariffs as we were in 2018 as we have a trade deficit with the US whereas he is targeting countries with a surplus with the US. That said, there is no guarantee.”
If Australia is not exempt, Oliver said, it would be detrimental for steel and aluminium producers, but exports of these products to the US account for just 0.2 per cent of Australia’s total exports, making the impact on the economy minimal.
He added that, similar to the restrictions on China in 2020, Australia would likely find alternative markets for these exports.
But the Australian Industry Group is far less optimistic, calling on the government on Monday to “use all the leverage at its disposal to quickly turn this around”.
“We worked with DFAT and trade negotiators during the previous Trump administration and have been doing the same with the new administration to seek to ensure there are zero tariffs for aluminium, steel and iron produced in Australia," said Innes Willox, chief executive of the national employer association.
Referring to a possible tariff on Australian goods as “a slap in the face for Australian industry and our mutually beneficial economic and security arrangement”, Willox said: “This decision reminds Australia that nothing can be taken for granted in what is a rapidly changing world.
“Pollyannaish hopes that we would fly under the radar have proven to be sadly misplaced. That this advice has been given the day after our deputy prime minister was in Washington to hand over billions of dollars to secure the AUKUS submarine deal is particularly troubling.
“It is now up to the federal government to quickly step in and protect Australian industry and producers from being caught up in a rapidly escalating global trade war.”
Trade war is ‘escalating’
For Innes, the immediate question following Trump’s announcement is how much of the 25 per cent tariff on all steel and aluminium imports was already factored into market expectations. He noted that the lack of an implementation timeline and the potential for negotiations has left investors on edge, signalling that his trade war is escalating.
“If Trump’s trade war rhetoric morphs into action, we’re looking at a perfect storm of rising bond yields, a weakening macro landscape, and a stampede out of tech and US equities,” SPI’s Innes said.
Reflecting on late 2018, Innes called it a “painful lesson” when trade tensions with China and an aggressive Fed policy caused the S&P 500 to post its worst annual decline since the financial crisis, with Cboe’s three-month implied correlation index spiking to signal macro panic.
“Flash forward to today? That same correlation index is scraping record lows, meaning stocks are still trading on their own merits. Typically, that’s a sign of market health. But here’s the problem: low correlation emboldens investors to take bigger risks. If the market abruptly pivots – whether due to tariffs, inflation shocks or a geopolitical curveball – the unwinding of risk-heavy trades could be savage,” he said.
Tipping the commencement of a “volatility vortex”, he said the stakes are “nothing short of a total market regime change”.
