Most investors thought there was no chance President Trump move move to impose tariffs on Australian aluminium or other imports due to the 'special relationship' between the two countries, but according to a report in The New York Times the unpredictable U.S. executive was actually contemplating the idea just last week.
The U.S. paper reporting that Trump and some of his top advisers were only put off the idea by protests from the U.S. military as Australia is an important strategic partner in the Asia Pacific region.
Since June 2018 other geographies including Canada, Mexico and European nations have intermittently worn 10% tariffs on aluminium and 25% tariffs on steel imports, as Trump attempts to protect blue-collar U.S. manufacturing jobs and fix the perceived trade imbalances.
In effect this should make Australian steel or aluminium imports to the U.S. far cheaper than from tariffed countries and help boost Australia's economy if only in a small way.
However, the news that the U.S. executive is once again considering imposing tariffs and escalating its trade dispute with China has a couple of important consequences for Australia as it's heavily dependent on Chinese demand to prop up its own economy.
If China goes into a slowdown it's likely to take the local economy down with it, given how reliant its export markets are on trade with China. In a worst case scenario it's possible China decides to stop doing business with U.S. allies such as Australia or even impose its own tariffs on Australian imports that could prove a disaster for many companies on the local economy.
So while the U.S. can approach the China trade war from a position of strength,Australia is potentially more vulnerable to disaster in a number of different ways if trade tensions continue to escalate.
Well known companies that could be hit the hardest include the likes of Rio Tinto Limited (ASX: RIO), BHP Billiton Limited (ASX: BHP), a2 Milk Co. Ltd (ASX: A2M) or Treasury Wine Estates Ltd (ASX: TWE).
