There are a couple of theories of how Australia got an exemption from Donald Trump’s steel and aluminum tariffs. The government’s preferred narrative is that a century of “mateship” (their word) between Australia and the US and Malcolm Turnbull’s close relationship with Trump — helped by Australia’s very own Trump Whisperer, Greg Norman — secured the exemption.

An alternative is that Trump, they say, is a “transactional president”. He’s using the threat of tariffs to force Canada and Mexico to agree to changes to NAFTA. He is demanding the EU drops their “horrific barriers and tariffs”. And he did a deal with Turnbull: on Twitter, he complimented the Prime Minister for being committed to “a very fair and reciprocal military and trade relationship. Working very quickly on a security agreement so we don’t have to impose steel or aluminum tariffs.” Sounds, for all the government’s frantic denials that there’s any “security agreement”, like Trump believes there’s a quid pro quo for the status quo

And then, as Turnbull pointed out, “the U.S. has a large trade surplus with Australia.” Which is very interesting. 

When John Howard committed Australia to a free trade agreement with the Bush Administration in 2004, he claimed it was a massive economic win for Australia. “It is an historic agreement. It will add enormous long-term benefits to the Australian economy,” Howard claimed. “There are great benefits in this for manufacturing; there are great benefits in it for the service industry; there are very significant benefits in it for agriculture.”

But few of those benefits have ever materialised. According to US government trade data, the value of our exports of goods to the United States since the trade agreement commenced in 2005 have failed to keep pace with inflation, while the value of US exports to Australia have increased 28% in real terms (US exports surged in 2010-12 because of the strong Aussie dollar, but since then, the currencies have returned to a more usual relationship). As a result, the goods trade deficit between the countries has more than doubled from US$6.4 billion in 2004 to US$14.5 billion in 2017. As for the “great benefits for the service industry, service exports to the US have increased, but nowhere near as rapidly as US service exports have increased to Australia — in fact, DFAT has to use a dramatically different scale to show the two countries’ services exports to each other.

While the AUSFTA was widening our trade deficit with the US, specific parts of the deal were also hurting us. In 2010 the Productivity Commission concluded about the AUSFTA that “the extension of copyright provisions (in particular, for existing works) has clearly imposed a net cost on the Australian economy.”

It seems that the only indirect of the AUSFTA in the long run has been to widen our trade deficit sufficiently that even a protectionist man-baby in the White House thinks there’s no point in punishing us.

Malcolm Turnbull and his ministers echo John Howard for every preferential trade deal they sign. Every new deal is a massive achievement that will shower economic benefits on the economy and represent a bold new era in access to lucrative foreign markets for our businesses. The hard numbers of Australia-US trade show the truth behind such nonsensical claims.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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