Australia’s Economic Future: Time to Rethink Our Role in Global Supply Chains

Whether one agrees with U.S. President Donald Trump’s trade policies or not, the imposition of tariffs - especially on China - has had ripple effects across the globe. For Australia, the consequences are more significant than they may first appear. Tariffs raise production costs and suppress demand for manufactured goods, which can reduce the global need for raw materials - Australia’s primary export sector.

Australia’s economic exposure goes beyond direct trade with the United States. As The Australian Financial Review noted, U.S. tariffs impact global supply chains, in which Australia plays a vital role as a supplier of raw materials. These materials are often processed in other countries and then re-exported, including to the U.S. So even though the U.S. accounts for just 4% of Australia’s direct exports, the broader implications are much deeper.

Gareth Spence, Head of Australian Economics at NAB, observed that this 4% figure understates the true effect of U.S. tariffs on Australia’s economy due to our embeddedness in international manufacturing processes. In other words, economic disruptions elsewhere ultimately circle back to affect us.

This raises a broader question: how should Australia position itself in a world where trade relationships are becoming more transactional and less predictable? Our close alignment with the U.S. economy exposes us to risks - especially when now, our major ally takes protectionist measures that harm global trade.

To ensure long-term economic resilience, Australia must seriously consider diversifying its economic partnerships and investing in sovereign industrial capacity. One example of such a nation-building vision is Project Iron Boomerang.

This ambitious proposal, developed by Queensland-based East West Parks Ltd, would link Western Australia and Queensland via a transcontinental rail corridor. The goal is to combine Western Australia’s iron ore with Queensland’s coking coal to produce steel domestically, rather than exporting the raw materials and re-importing finished steel products.

According to the ABC, the plan includes building five steel mills at either end of the rail line - near Newman and Moranbah - along with export terminals at Port Hedland and Abbot Point. This would shift Australia’s role in the global steel supply chain from a resource exporter to a manufacturer of high-value steel products.

The benefits could be substantial: thousands of construction and manufacturing jobs, lower transport emissions (by shipping compact steel slabs instead of bulky raw ore), and a step toward restoring Australia’s manufacturing capabilities. Importantly, it would also enhance our strategic autonomy by allowing us to make more of what we need domestically.

However, the project has faced challenges. The federal government has raised concerns about the cost of a feasibility study into the viability of the project, the limited consultation with Traditional Owners, and doubts about the number of jobs it would realistically create. These issues should not be dismissed, but addressed openly through proper feasibility studies, transparent dialogue, and inclusive planning. As with any major infrastructure undertaking - such as the Snowy Mountains Hydro Scheme - challenges are inevitable but not insurmountable and the benefits outweigh costs. In a submission to the senate standing committee charged with preparing a report on the inquiry into “The Project known as Iron Boomerang”. Civil engineer Max Hooper, in his support of the Project Iron Boomerang (PIB), cites its potential to transform Australia through nation-building infrastructure, economic gains, and carbon reduction. He notes positives such as:

• Private backing: Major global steelmakers are reportedly ready to invest.

• Economic impact: Expected billions in annual tax revenue, cheaper steel production than China, and enhanced sovereign capability.

• Environmental benefits: Targets 80% emissions cuts by 2030 and net-zero by 2040.

• National security: Diversified steel supply could reduce conflict risks.

• Synergies: Aligns with other major projects (Inland Rail, pumped hydro, Sun Cable) and could host HVDC energy infrastructure.

He urged the Senate to consider PIB in the broader context of energy, manufacturing, and national resilience, but the government rejected the Project in August 2023 failing to recognise the impact this project could have in the region not just Australia.

Australia could become a leading supplier of manufactured goods and a major supplier of steel in our region. This in turn would encourage manufacturing and create jobs in the Pacific Nations, making them less reliant on other countries.

The question of funding is a fundamental obstacle. But if COVID-19 taught us anything, it’s that governments can mobilise vast sums when the need arises. According to the Australian Bureau of Statistics, the federal government borrowed over $88 billion in a single quarter in 2020 to fund stimulus during the pandemic. Much of that spending was emergency support and stimulus packages, not investment in long-term productive capacity.

Why not apply similar urgency and resources to a transformative industrial project? Critics might point out that Iron Boomerang is a private initiative and argue against public subsidies. Yet the fossil fuel industry receives billions in government support annually - $9.6 billion in fuel tax credits alone, including $1.5 billion to coal, oil, and gas companies, according to the Australian Council of Social Service.

If the Australian government is willing to subsidise fossil fuel extraction, surely we can have a serious conversation about supporting a manufacturing revival that creates jobs, builds infrastructure, and adds long-term value to our economy.

Australia stands at a crossroads. We can continue exporting raw materials and relying on volatile global markets, or we can invest in ourselves - through sustainable infrastructure, sovereign capability, and inclusive development. Projects like Iron Boomerang aren’t just about steel; they’re about the kind of country we want to be.