How are Trump's trade tariffs impacting on infrastructure?

As the 45th President of the United States begins implementing tariffs on the global market, what effects will it have on Australia’s infrastructure industry? Roads & Infrastructure Magazine reports.

A year and a day into Donald Trump’s presidency, the US Secretary of Commerce provided the president with a report on the effect of imports on aluminium and steel into the US.

On 1 March, President Trump announced he intended to impose a 25 per cent tariff on steel and a 10 per cent tariff on aluminium imports. The very next day, he tweeted that “trade wars are good, easy to win”.

One week later on 8 March, the President ordered the tariffs be enforced for each country except Canada and Mexico within 15 days. Australia, Europe, South Korea, Argentina and Brazil were confirmed later to be exempt until 1 May.

China responded by announcing its own 25 per cent duties on $50 billion of US imports. Media reports at the time suggested that a trade war could be building between the two world superpowers.

Professor Tony Makin, an expert on international finance and macroeconomics from Griffith University, says there have been two types of effects from this feud: direct and indirect.

“There will be direct effects on industries hit by the tariffs and indirect effects on how companies around the world act due to the new trading environment,” he says.

“If the tension escalates from where it is now, tit for tat measures from China, the US and Europe would have significant effects on world growth.”

Prof. Makin says that these economic measures will make products more expensive for industries and restrict economic activity.

“While Australia was exempted from the aluminium and steel tariffs, other countries were not. That means that the cost of production would go up for many US firms reliant on steel and aluminium,” Prof. Makin says.

“This would include the infrastructure industry, as steel is a key ingredient for many forms of construction.”

Prof. Makin explains this may not be the case for Australia, though.

“As some countries or companies begin to find it more difficult to sell their product into the US, some may offload it cheaply into Australia to run down excess stock.”

The fact that Australia’s infrastructure sector is in the non-tradeable part of the economy also insulates it from the current international trade disputes to some degree.

“Therefore, it’s difficult to say with certainty how restricted international trade will affect the construction industry directly. Nonetheless, the industry is still reliant on the products affected as inputs to construction, which may impact the cost of construction,” Prof. Makin says.

He says the key negative point about the escalation of trade tensions is how it has indirectly adversely affected investor sentiment.

“The world is more connected than ever as economies have globalised. Restricting trade restricts growth and stock market valuations can reflect that as a result,” Prof. Makin says.

“Indirect effects would filter through and impact the infrastructure industry and other industries too. Should world trade stop growing, there will be impacts on global GDP and wealth, affecting investment going forward.”

Giovanni Di Lieto teaches international trade law at Monash University. He says America is weaponising trade as an instrument of geopolitical policy against China, both countries being two of Australia’s biggest trading partners.

“We currently depend on the US for investment and our major customer internationally is China. Australia has been enjoying the status quo,” he says.

“In terms of investment, disruption of global supply routes as China has risen to the global stage may lead into further investments in third party countries. A high stakes contest might actually benefit Australia, Japan and the general Asia-Pacific region if they can keep doing business with both the US and China.”

Dr. Di Lieto explains that if each of the superpowers make it harder to invest in each other, it will mean that they will have to divert to other countries to minimise disruption in the supply chain.

“Taking a historical view, the way smaller countries can pressure larger ones is through major contracts. It looks like Australia will continue to be an exemption from the US tariffs thanks to the huge tender process for the defence industry’s multi-billion-dollar contracts,” he says.

“Natural resources are also the rational response from Australia in case China begins to push boundaries. Of course, this would be starting a spiral to an extent that could cause a recession in terms of blocked supply chains and global value and capital flows.

“The roads and infrastructure industries would be one of the industries at the forefront of this, together with education, if Australia was hit by a spiral of economic clashes.”

One potential benefit for the infrastructure industry could come from pressures upon the traditional global supply routes. Dr. Di Lieto says that if traditional trade routes through the South China Sea become higher risk, ports on the east coast of Australia may suffer. On the other hand, the west coast of Australia would see significant investment in new or upgraded infrastructure.

“In terms of trade, the Indian ocean is clear. If there was a risk in traditional methods of global trade, the natural response would be to create alternatives, such as railroads and strengthen ports.”

Dr. Di Lieto says while Australia sits on the fence between the US and China for trade investment diversions, it is still hard to guess what will happen next.

“A vast majority of these measures have not been enacted yet. It’s a bit too soon to talk about a lot of the possible scenarios as it’s highly complicated and highly interdependent.”