US proposes tariff hike on Australia over forced labor claims

The US's proposal to use a tariff to punish Australia over slave labour should come as no surprise.

That's not to say Donald Trump's "America First" priorities have morphed. The US is not reshaping its trade relationships to defend foreign workers' rights.

It is simply doing what it said it would do after the US Supreme Court killed off most of Trump's earlier tariffs in February.

That is, it is finding new reasons to impose tariffs and trying to ensure those reasons can survive the courts.

The trade investigation that made adverse findings against Australia — along with every other country that was investigated — was launched soon after that Supreme Court ruling.

Trump had been using tariffs to increase his power over other countries until the court got involved. If he was angry with a country or its leader, he frequently expressed it with a Truth Social post threatening tariff-related consequences.

He was never going to cede that power easily.

Immediately after the court decision, Trump and his trade officials were explicit about their plan to run special trade investigations so they could bring tariffs back.

"Other alternatives will now be used to replace the [tariffs] that the court incorrectly rejected," Trump said at the time. "We have alternatives. Great alternatives."

The so-called "Section 301" investigations, named for the relevant section of trade law, are a legal way to produce justifications for tariffs.

Trump's top trade official, Jamieson Greer, had promised to "fast-track" such investigations, with a focus on eight areas, including forced labour.

"The administration was clear immediately after the Supreme Court ruling that it would be looking for continuity in tariff policy," said trade lawyer Patrick Childress, who worked in the US government's trade office under both Trump and Joe Biden.

"So that's sort of the guiding framework that you should be thinking about when you look at the tariffs that are in place now and what we can expect from tariffs going forward."

Surprise hike

But this investigation also produced a less predictable result.

Australia now faces a tariff increase.

When Trump unveiled his initial "Liberation Day" tariffs last year, Australia was among the luckiest of the losers.

Its exports were slapped with a tariff of 10 per cent — the lowest possible under the tariff scheme that Trump had set up.

Many of the US's trading partners had fared much worse. Big economies in Asia faced tariffs of up to 49 per cent, though some managed to negotiate them down over time.

Australia's relatively low tariff rate gave it a competitive advantage against those countries that were subject to higher tariffs.

Now, if the latest proposal goes ahead, the tariff on Australian products will climb to 12.5 per cent.

That is the highest of the tariffs proposed to result from this investigation. More than a dozen countries are facing tariffs of just 10 per cent.

Many of the countries that previously had high tariffs compared to Australia now look set to enjoy a more level playing field.

In other words, Australia may lose the competitive advantage that came with a lower-than-average tariff.

More on the way

The Trump administration is determined to rebuild a tariff wall similar to the one it had in place before the Supreme Court knocked it down.

A second Section 301 investigation is underway. It is looking at countries' "overcapacity" in manufacturing.

Only 16 trading partners are being investigated, rather than 60, and Australia is not one of them. Most are in Asia.

There are also specific investigations into countries, including Vietnam and Brazil.

One likely outcome is more tariffs on those countries, which would be added to the tariffs from the forced labour investigation.

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Trade lawyers like Childress, who is now a partner at firm Holland & Knight, believe it could ultimately lead to a tariff regime that looks a lot like the previous one.

"It's yet to be seen exactly how the various tariff regimes from these different investigations are going to interact," he told the ABC.

"It does seem like, at a minimum, the Section 301 tariffs on forced labour and the Section 301 tariffs on overcapacity are likely to be additive, or stack on top of each other."

"And this could be one way that the administration would be looking to get continuity between the [previous] tariff rates and the new Section 301 tariff rates."

That means some countries could be looking at substantially higher tariffs again in future.

"Australia might regain some of that competitive advantage that you all enjoyed under the [previous] tariff regime," Childress said.

Art of the deal

It's worth remembering why Trump loves a tariff so much.

They are not just about raising revenue, nor about revitalising US manufacturing, though his administration often talks up those benefits.

Trump knows tariffs can damage the economies of countries that have come to depend on trade with the US, so he can use them to negotiate "deals".

This new investigation will trigger a flurry of new conversations, in countries around the world, about how to appease the White House to try lower or avoid the proposed tariffs.

Australia will be one of those countries. It has less than three weeks to prepare a submission to plead its case.

It is already publicly arguing that it is leading the world in addressing forced labour and modern slavery.

Trade Minister Don Farrell also spoke to Greer about that issue in Paris overnight, the ABC has been told.

But forced labour issues are likely to quickly become a small part of the conversation.

Greer has previously foreshadowed future Section 301 investigations into areas that include key grievances with Australia, such as pharmaceutical pricing practices and "discrimination" against American tech companies.

Possible targets of such probes include Australia's Pharmaceutical Benefits Scheme and its efforts to make social media platforms pay for news content.

Meanwhile, Trump will now, as in the past, be looking for countries to come with him with offers for deals that he views as beneficial.

Australia has played this game before. It has been using its abundant critical minerals — and America's need for them — as a bargaining chip. Some early deal-making has already been done at the White House.

But the game continues, and some of the rules are changing. Australia will need to keep a close eye on the ball.