US President Donald Trump appears to be softening his stance on slapping hefty tariffs on all steel and aluminium imports, a move that could allow Australia and other American allies avoid being punished.
Australian Foreign Affairs Minister Julie Bishop, in New York on Wednesday, said Australia would ask the US to be exempt from the tariffs.
The White House announced allies Mexico, Canada "and possibly other countries" could be exempted based on national security issues.
Australia is a crucial US ally in terms of security in the Indo-Pacific.
"It will be country-by-country and it will be based on national security," White House spokeswoman Sarah Sanders, asked about the exemptions, told reporters.
Mr Trump raised the prospect of a trade war last week when he announced he would impose, without exemptions, a 25 per cent tariff on steel imports and 10 per cent on aluminium entering the US.
Mr Trump pointed to China dumping cheap steel and aluminium on the global market and ruining US manufacturers.
Ms Bishop did paint a gloomy picture for the world if Mr Trump did push ahead with the tariffs.
"If the current dispute widens and action leads to counter action we might see a downward spiral that could put at risk the open trading environment and that would harm us all," said Ms Bishop, at an Asia Society event in New York hosted by former Australian prime minister Kevin Rudd.
Ms Bishop said nations retaliating against the US with tariffs was a no-win path and she said Australia would look at, but likely would not support, nations filing disputes in the World Trade Organisation against the US because "we are strong and close and deep supporters of the United States".
"Our exports into the US are minuscule compared to others so it doesn't immediately spring to our mind it would be in our national interests to do so," she said.
The foreign minister said Australia had lost one of its "conduits" in the White House with Mr Trump's top economic adviser Gary Cohn resigning over the tariff issue on Tuesday.
Australian Associated Press