As global trade rules falter, how can Australia protect itself from economic coercion?
- Written by: Peter Draper, Professor, and Executive Director: Institute for International Trade, and Director of the Jean Monnet Centre of Trade and Environment, Adelaide University
The United States was once a champion of fair trade rules. Now, it has transformed into a rampaging Viking seeking extortionate tributes.
This shift means America now uses its power to pressure even its closest allies, threatening to withdraw military protection while hitting them with punishing trade tariffs.
Australia depends on America for its security, yet we’re increasingly vulnerable to American economic pressure.
US President Donald Trump’s now illegal “Liberation Day” tariffs[1] showed that trade is a frontline instrument of US geo-economic power rather than a technocratic domain for trade negotiators.
Trump has since announced the reimposition of 10% tariffs[2] across the board. He then hiked the rate in a social media post to 15%.
The world order has “ruptured”, Canadian Prime Minister Mark Carney has warned – so it’s time for countries like Australia and New Zealand to forge a new, less US-reliant future. In this six-part series, we’ve asked top experts to explain what that future could look like – and the challenges that lie ahead. Not the act of a friend The uncomfortable reality is that the United States has moved from rule setter to rule breaker[3].That gives the US enormous scope to “friend coerce” its allies, threatening withdrawal of security guarantees while beating them with tariff and other trade tools[4]. Trump’s unilateral tariffs, layered over existing “national security” tariffs and a baseline levy on all imports, have left Australian exporters facing higher barriers[5].
In this environment, deeper economic integration with China brings its own geopolitical risk. We could move to enhance our free-trade agreement with China by broadening services commitments, easing investment screening, or adding new digital and green economy rules. But this would entrench trade relations with China just as Washington is trying to “de-risk” them[6]. That could inflame perceptions in US security circles that Australia is hedging too far economically, even if the intent is purely commercial.
Canada faces the storm, too Canada is experiencing US pressure first-hand. Canadian Prime Minister Mark Carney, in Australia last week[7], has emerged as a leading voice against what he calls economic “coercion” by dominant powers. He said[8] countries cannot live within the lie of mutual benefit through integration, when integration becomes their source of subordination.
Canada faces a particularly difficult situation. Three-quarters of Canadian exports go to the United States[9], making up about one-fifth[10] of Canada’s entire economy. Carney’s visit aimed to strengthen trade and defence ties[11] between middle powers that share similar challenges. Both Australia and Canada are seeking ways to reduce dependence on unpredictable American trade policies – while maintaining crucial security relationships.
The US has other options for tariffs
More country-specific tariffs[12] are likely, using Section 301 of the US Trade Act of 1974. This can be applied where the US “finds” that a foreign country’s trade practices are unjustifiable, unreasonable or discriminatory to US commerce[13].
Countries that wobble in implementing the ad hoc trade deals agreed after tariffs were imposed will be investigated. China is already subject to four waves of tariffs[14], cumulatively covering two-thirds of its exports to the US.
Under a separate law, the US imposed a variety of sectoral tariffs on products, such as steel, aluminium and auto parts[15]. More will likely follow.
Australia may be subjected to these new sectoral tariffs[16]. They could have far greater impacts than last year’s 10% “reciprocal” tariff.
For Australia, deeply integrated with US security but increasingly exposed to US economic coercion, that poses a hard question. What can we build into our existing trade relationships to avoid becoming collateral damage in the next escalation?
Trade deals have quietly done their job
The answer is not to abandon free-trade agreements (FTAs) in favour of a vague new class of “economic security agreements”.
Rather, Australia should modernise our FTAs, investment partnerships, and financial arrangements so they provide genuine resilience when the next shock hits, whether it comes from Washington or Beijing.
Our largest goods and services partners are almost always FTA partners[17] – we have a range of agreements with China, Japan, South Korea and other Asian nations.
These agreements have served to grow and diversify Australia’s trade over two decades.
Walking away from FTAs in the name of “economic security” would be like cancelling your home insurance because the neighbourhood has become more dangerous.
Don’t reinvent the wheel in the name of economic security
There is now a fashion for narrow “economic security” deals on critical minerals and supply-chain resilience that sit alongside FTAs.
Australia is already part of this world through bilateral critical minerals partnerships and joint-funding commitments with the US, EU, Japan, UK, South Korea, India, France and Germany[18].
These arrangements do not replace FTAs; they overlay and complement them.
Moreover, the essential economic security tools are already available inside modern FTAs and related instruments. These include:
- chapters on supply chain resilience, export restrictions and transparency
- provisions on investment screening and security exceptions
- cooperation on critical minerals, clean energy and advanced technologies.
Collectively, these signal to markets that partners will privilege each other when crises hit. That contributes to building economic resilience in key supply chains.
Critical minerals could be Australia’s leverage
In critical minerals, Australia holds genuine structural leverage with the US and other partners. So, too, does Canada.
Australia supplies a significant share of US imports of uranium[19], niobium, tantalum and vanadium[20] ores, and titanium[21] — all vital for nuclear energy, aerospace, defence, and advanced batteries.
We are also the world’s leading producer of lithium[22] and a major player in rare earths, with companies such as Lynas now producing key heavy rare earths[23] outside China for the first time.
Australia and Canada signed a series of new agreements[24] on critical minerals during Carney’s visit.
Recent US-Australia arrangements propose substantial joint financing for critical minerals[25] projects. The EU’s critical minerals partnership with Australia explicitly aims to reduce European dependence on China[26] by backing Australian projects.
This gives us crucial leverage in key bilateral trade and investment partnerships, should we wish to use it.
Build collective resilience with like-minded partners
Australia’s best defence isn’t to retreat from openness, but to strengthen and diversify the rules-based system that supports it.
By working with like-minded middle powers such as Canada, the EU, Japan, and others, Australia can build resilience against economic coercion from any direction – whether from supposed friends or declared rivals.
As Carney’s visit demonstrates, middle powers face similar challenges and can achieve more by standing together than by standing alone.
References
- ^ illegal “Liberation Day” tariffs (www.reuters.com)
- ^ reimposition of 10% tariffs (www.whitehouse.gov)
- ^ rule setter to rule breaker (www.foreignaffairs.com)
- ^ tariff and other trade tools (www.cambridge.org)
- ^ Australian exporters facing higher barriers (www.abc.net.au)
- ^ Washington is trying to “de-risk” them (www.ibisworld.com)
- ^ in Australia last week (www.bbc.com)
- ^ said (www.theaustralian.com.au)
- ^ exports go to the United States (www.cfr.org)
- ^ one-fifth (econofact.org)
- ^ trade and defence ties (www.abc.net.au)
- ^ country-specific tariffs (theconversation.com)
- ^ unjustifiable, unreasonable or discriminatory to US commerce (www.congress.gov)
- ^ four waves of tariffs (content.ballastmarkets.com)
- ^ steel, aluminium and auto parts (www.cfr.org)
- ^ new sectoral tariffs (www.hinrichfoundation.com)
- ^ almost always FTA partners (www.dfat.gov.au)
- ^ US, EU, Japan, UK, South Korea, India, France and Germany (www.industry.gov.au)
- ^ uranium (wits.worldbank.org)
- ^ niobium, tantalum and vanadium (trendeconomy.com)
- ^ titanium (theoregongroup.com)
- ^ leading producer of lithium (www.abs.gov.au)
- ^ Lynas now producing key heavy rare earths (www.mining.com)
- ^ new agreements (theconversation.com)
- ^ joint financing for critical minerals (www.csis.org)
- ^ reduce European dependence on China (www.eeas.europa.eu)
