Spotlight on Australia - February 2025

When President Donald Trump imposed tariffs on aluminium and steel in his first term, Australia was able to eventually gain an exemption. However, this time around, Trump said there will be no exemptions:

“It's 25 per cent, no exemptions, no exceptions,"

The accompanying media release from the White House talked about closing exemptions and loopholes that weakened the enforcement of the 2018 tariff - Australia was specifically mentioned!

Despite this, Prime Minister Anthony Albanese is confident that Australia can still snag an exemption, particularly as Australia has a trade surplus with the US.

But if Australia does not get an exemption then how bad will this be for Australia? We start by looking at the development of both the steel and aluminium industries in Australia before looking at their relative importance.

Australian steel

Despite the discovery of iron ore deposits during colonial times, Australia’s first modern steel works did not begin operating until 1907 in Lithgow when the state government sought to establish a local supply of steel. However, the Lithgow steel works struggled and it was BHP that truly established the industry in 1915. 

In 1899, BHP acquired the mining lease for Knob Hill, South Australia: a high quality iron ore deposit. With advice from an American consultant (America was then the global powerhouse in steel making and innovation at the time) BHP opened a steel works in Newcastle NSW in 1915. Newcastle was close to large coal mines, had a natural harbour, and had sufficient local labour. Iron ore was shipped from South Australia and limestone from Tasmania.

The opening of the Newcastle steel works coincided with the First World War, which quickly underlined the importance of a local steel industry.

Tariffs ensured that Newcastle could compete when imports recommenced after the war. New steel works were opened at Port Kembla, NSW, in 1928 (using the blast furnace from Lithgow) and Whyalla, South Australia in 1941. Their contribution to Australia’s war-time economy during the Second World War was critical and is highlighted by the Japanese submarine attack on the Newcastle steel works in 1942.  

During trade deregulation in the 1980s and 1990s, the local steel industry faced increased competition from imports, which ultimately led to BHP closing the Newcastle steel works in 1999 and divesting from Port Kembla and Whyalla.

In recent decades, Chinese imports have further eroded local production (see chart below).

However, there is now a push towards making steel using green hydrogen. In February, the government announced a AUD 1 billion investment into green iron and steel. The government wants to leverage Australia’s advantage in iron ore and renewable energy.

Australian aluminium

Australia has the world' s largest reserves of bauxite, which is the principal ingredient of alumina which is then used to make aluminium. Australia is the 6th largest producer of aluminium. 

Australia’s first aluminium smelter, and the first in the southern hemisphere, was opened in 1955 at Bell Bay in Tasmania. Australia wanted to ensure aluminium supplies for national security reasons. It also coincided with the discovery of the world-class bauxite reserves in Weipa, Queensland.  

Production increased enormously during the 1980s and 1990s in response to foreign investment and the construction of new smelters in the 1970s and early 1980s. With local access to bauxite and cheap electricity (mostly from coal), Australia was able to gain a cost advantage after the OPEC oil shocks in the 1970s.

However, in recent years, the industry has suffered from increasing Chinese competition and pressure to move to using electricity from renewable sources. Australia’s smelters use around 10% of Australia’s electricity and are responsible for 5% of Australia’s GHG emissions. Two smelters closed in 2015. 

In January, the Australian government announced a AUD 2 billion investment in green aluminium.

Australian steel and aluminium today

In 2023, Australia produced over 3x more steel than aluminium by weight (see chart below). But while it exported around 97% of its aluminium, it only exported around 19% of its steel.  

In terms of value, Australia exported USD 2.4 billion of steel and iron in 2024 and USD 13.3 billion in aluminium. The price of aluminium is much higher than that of steel. Australia mostly exports unwrought and unalloyed aluminium and scrap iron but mostly imports manufactured aluminium and steel products.

The US market and overall exports

When it comes to Australian exports and the US, the stakes are highest for Australian steel producers. In 2024, the US was the top export destination for Australian steel exports with a share of 14% of total value (see chart below). For Aluminium, the US was the 18th-largest partner with a 2.3% share of total value - sandwiched between Argentina and New Zealand (see second chart below).

In terms of Australia’s overall exports by value, aluminium and steel both pale in comparison to iron ore, LNG, coal, and many other exports (see chart below).

In terms of labour, all metal manufacturing jobs (including copper, zinc, and other metals) amount to just 1% of the workforce. However, as government support for the ailing Whyalla steel works shows, steel workers are concentrated in a small number of electorates and cannot be ignored.

From the American perspective, Australian steel and aluminium imports are small fry. Australia ranks 22nd for steel imports and 21st for aluminium imports for the US.

However, Australian aluminium exports to the US did jump after Trump’s first-term tariffs and exemption and critically was noticed by Trump’s current senior counselor for trade and manufacturing Peter Navarro. 

 "Australia is just killing our aluminium market". Peter Navarro.

Final thoughts

Australia has a good chance of eventually getting its exemptions for the aluminium and steel tariffs as Australia typically has a trade surplus with the US (USD 17.9 billion in 2024) and this matters to Trump the mercantilist. Australia’s share of steel and aluminium imports is also very small.

Australia also provides the US with a range of strategic benefits and is stumping up to buy US nuclear submarines in addition to the jets, and other military equipment Australia already buys from the US - this matters to Trump the transactionist and strategist.

However, while the Labor government would feel political pressure in an election year if they did not secure an exemption, it is unlikely to be an economic disaster for Australia given the small relative size of Australia’s aluminium and steel exports and the US share of those. In comparison what happens with a slowing Chinese economy and iron ore exports matters much more for Australia.