Australia should leave security out of the argument about trade with the US. The security relationship with the US must stand or fall on its own merit. Australia has much to gain from being part of the US security umbrella and from sharing intelligence with US forces. Waving the security card will not help.
It means, therefore, that we must argue the trade card with greater force.
The US has imposed the tariff because, it argues, cheap foreign steel is being dumped on the US market from countries that subsidise steel production. That is not true of the Australia steel industry which is one of the most efficient in the world. The Australian industry has reformed and restructured and can now land steel on the west coast of the US for $40 a tonne less than east-coast US manufacturers. That point should be argued. Australia should have been exempted from the tariff. The US should be asked to either identify what subsidies Australian steel gets, or exempt Australian steel. The US says that its tariff is allowed under World Trade Organisation rules. Once again that point should be argued in WTO forums. Australian should seek whatever penalties the WTO can impose. Further, Australia needs to point out more forcefully the US hypocrisy in this decision. President Bush frequently appeals to the world to open up markets and to apply free trade. But as soon as his home market gets the whiff of some competition, he retreats to protectionism.
Australia needs to highlight what poor policy it is from a US perspective. The US steel industry is hopelessly inefficient. Propping it up with protection will only postpone the day it will reform and become more efficient. In the meantime, US consumers will have to pay for the protection in the form of higher steel prices passing through the manufacturing chain, making those industries less efficient.
The US has opted for the easy way out in the short term. Mid-term congressional elections are due in November and President Bush wants the Republicans to retain control of the House and get back control of the Senate. That means being seen to do things in critical states – especially the rust belt in the east. Slapping on a tariff is seen as action and may win votes in the short term. In the long term, though, the policy will harm the US because it harms trade.
The tariff imposition – and the exemption of Canada and Mexico from it – underlie the need for Australia to push for a free-trade agreement with the US – widening the North American Free Trade Agreement if necessary.
The fact that we can land steel in the US so competitively reveals that Australia does not suffer a tyranny of distance, but a tyranny of isolation. If multi-lateral world trade agreements falter because of selfish US unilateralism and isolationism, it means Australia will have to seek out more bi-lateral and regional trade agreements. It would be an unfortunate trend. The potential benefits of greater freedom of world trade are immense. Mr Bush’s narrow, opportunist tariff imposition is a highly risky path. He may win the battle of a couple of seats in Congress, but he risks losing the more important quest for greater freedom of trade and that could cost the US – and the ideals it stands for – dearly.