A 25 per cent tariff on Australian steel and aluminium is expected to come into effect this afternoon. Australian businesses are encouraged to take measures like flexible contracting and financial hedging to mitigate the effects.
UNSW School of Marketing head Professor Maggie Dong said short-term measures like flexible contracting, diversification, nearshoring and regionalisation and financial hedging can all go a long way to seeing Australian miners through an adjustment period brought on by the tariffs.
“As long as our products offer added-value technology that others can’t easily compete with, we’re not just competing on price,” Dong said.
“This creates a competitive advantage for our firms and industry sector, helping offset the impact of US tariffs.”
Flexible contracts
Short-term agreements, or “flexible contracts”, involve negotiating adaptable agreements to accommodate price fluctuations.
Flexible contracting may also allow companies to explore alternative markets or reconfigure their business models to reduce reliance on the US market, making them less vulnerable to changes in US trade policies.
Diversification
Australian miners that diversify their export markets beyond one or two trading partners will be less likely to be impacted by the tariffs, according to Dong.
“Especially for multinationals, they should avoid over-reliance on a single source or just a couple of markets to better absorb the shocks of tariffs or trade barriers,” she said.
Nearshoring and regionalisation
Nearshoring is a form of offshoring in which an organisation sources from a neighbouring country.
“By deepening engagements with growing Asian economies, Australia can diversify export markets and leverage its regional influence for better trade deals,” Dong said.
Financial hedging
Dong said Australian companies can use supply chain finance solutions to help manage tariff-related costs. By placing orders earlier, for example, businesses can mitigate the impact of higher costs caused by tariffs.
“In global supply chains, currency fluctuations compound the volatility caused by tariffs. Using multi-currency loans sometimes helps businesses manage these risks,” Dong said.
“Another strategy is commodity hedging – leveraging commodity futures and options to lock in prices and minimise exposure to sudden cost spikes.”
While certainly not the news Australia hoped for and the tariffs are likely to have consequences, some solace can be found in the fact that only 10 per cent of annual Australian steel and aluminium exports are destined for US shores.
South Korea imports 34 per cent of Australian aluminium, followed by Japan at 24 per cent. India is also a fast-growing importer, with hunger for Australian aluminium growing in Bangladesh and Mexico as well.
Australia is also the world’s largest producer of bauxite, the primary raw material for alumina and aluminium production, the majority of which goes to Chinese markets.
