Walking a trade tightrope between a rock and a hard place

Australia is facing an increasingly fraught trading tightrope walking act between a swinging rock and a hard place, says a University of NSW business marketing academic.

Professor Maggie Dong is head of the School of Marketing at UNSW Business School.

In a publicly-released non-exclusive interview, she looks at ways for Australian exporters to do business with an unpredictable US and Asia, led by China.

She is pointing to short-term strategies as one way of helping offset the costs of US tariffs.

Australia exported 223,000 tonnes of steel and 83,000 tonnes of aluminium to the US last year. With the US imposing 25 per cent tariffs on steel and aluminium this week (March 12 US time), Australian companies are having to face tough decisions.

Prof. Dong says Australia faces a growing dilemma: while economically reliant on Asian markets like China, it also faces pressure to align politically with the US.

“This tension between economic interests and security alliances presents significant challenges. With the US and China already engaged in a global trade war, Australian companies must prepare for heightened trade tensions, increased uncertainty, and higher prices,” she says.

Prof. Dong identifies flexible contracting, nearshoring, diversification, and financial hedging as short-term strategies to pursue.

“Drastic changes to the global supply chain are costly and take time – sometimes years to take effect. In the meantime, short-term strategies like hedging – offsetting investment losses by taking an opposing position – can be helpful,” she says.

TACKLING TARIFFS 

Prof. Dong explains that US tariff changes pressure Australian companies by increasing costs, disrupting supply chains and imposing new trade restrictions.

With Trump issuing over 70 executive orders in just over 30 days, she says “uncertainty has become the new certainty”.

Since 2005, the Australia-US Free Trade Agreement has eliminated tariffs on many Australian exports to the US and reduced tariffs on others. However, recent changes have introduced significant business risks for exporters reliant on the US market.

Retaliatory Chinese and Canadian tariffs, and shopping boycotts, have exacerbated concerns across Australia’s manufacturing sector and beyond.

Prof. Dong, who is researching the links between tariffs and international trade, outlines the short-term strategies to moderate the impact of US tariffs on Australian exporters. These are:

• Flexible contracting; by adopting flexible contracts, companies can adjust their terms and pricing more quickly in response to changing external factors, such as tariffs or other trade policies. These short-term agreements, or “flexible contracts”, involve negotiating adaptable agreements to accommodate price fluctuations.
• Diversification; businesses can reduce political risks and build resilience by diversifying their export markets in the face of new tariff policy and a growing trend of protectionism in which countries increasingly use tariffs, import quotas, and subsidies to shield domestic industries from foreign competition.
• Nearshoring/regionalisation; shifting production closer to home to reduce reliance on US-dependent supply chains. Nearshoring is a form of offshoring in which an organisation sources from a neighbouring country. Companies with a significant US market may consider nearshoring or reshoring their suppliers while those prioritising European or Asia-Pacific markets may benefit from regionalisation.
• Financial hedging: 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. Prof. Dong says companies can use currency and commodity hedging strategies to manage tariff-related expenses.

FLEXIBLE CONTRACTS

“… flexible contracts usually includes a clause allowing for quick renegotiation in the event of some unpredicted situations, like tariffs or supply shocks,” says Prof. Dong.

“So, I would say, especially for this Trump tariff, I think the short-term adjustments that focus on flexible contracting would be the first step.”

Flexible contracting may also allow companies to explore alternative markets or reconfigure their business models to reduce reliance on the US market.

PROTECTIONISM

According to Prof. Dong, local protectionism drives up costs for imported goods and encourages consumers to buy locally, supporting domestic businesses and jobs.

(In Canada, residents are boycotting American products over US President Donald Trump’s insistence that Canada become a US state and constant reference to PM Justic Trudeau as ‘governor’).

As protectionism reshapes global trade, she suggests Australian companies prioritise supply chain resilience, risk mitigation and diversification to stay competitive in an unpredictable market.

“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 says.

REGIONALISATION

Prof. Dong notes that firms must evaluate their strategic priorities and consider political relationships amid a polarising world. Strengthening digital capabilities to predict supply chain disruptions is also key to long-term resilience.

“Australia’s strategic location at the crossroads of the Indo-Pacific region puts it in a unique position to strengthen trade alliances and mitigate the impact of US tariff policies,” she says.

“By deepening engagements with growing Asian economies, Australia can diversify export markets and leverage its regional influence for better trade deals.”

HEDGING

“In global supply chains, currency fluctuations compound the volatility caused by tariffs. Using multi-currency loans sometimes helps businesses manage these risks,” says Prof. Dong.

“Another strategy is commodity hedging – leveraging commodity futures and options to lock in prices and minimise exposure to sudden cost spikes.”

However, she notes that these financial strategies can be complex and require careful consideration.

GOVERNMENT SUPPORT 

Prof. Dong emphasises that policymakers are key to keeping the economy globally competitive and Australian Prime Minister Anthony Albanese has also stressed the need for exporters to remain competitive.

“As long as our products offer added-value technology that others can’t easily compete with, we’re not just competing on price,” says Prof. Dong.

“This creates a competitive advantage for our firms and industry sector, helping offset the impact of US tariffs.”