American President Donald Trump’s announcement of reciprocal tariffs has finally provided some level of certainty around the currently murky future of global trade.
The Executive Order has seen a 25 per cent tariff on foreign-made automobiles has come into effect effective immediately, while a blanket 10 per cent tariff will come into effect on Saturday, April 5.
Custom tariffs for countries labelled the “worst offenders” will then come into effect on April 9.
Australia, along with the likes of New Zealand, Singapore, the United Kingdom and Brazil, are part of the group hit with the blanket ‘baseline’ tariffs of 10 per cent.
Beef tariffs, despite Australia’s banning of American beef in 2003 and likely 70-year lows for US herd capacity, will be subject to the 10 per cent tariff, along with alcohol, pharmaceuticals and horticulture.
Aluminium and steel will be subject to a 25 per cent tariff in line with the rest of the world.
While the implementation of these new import taxes has been hailed as ‘liberation day’ by President Trump and his representatives, Monash Business School’s Senior Lecturer for Business Law and Taxation Dr Nicola Charwat has expressed her concern for how it will impact global trade.
“The ‘liberation day’ tariffs represent the culmination of the abandonment of multilateralism and the turn to mercantile, power-based trade relations,” she says.
“I find these tariffs are particularly significant because they target essentially all trading partners simultaneously, regardless of alliance status or existing agreements. In contrast to the usual and occasional bilateral trade disputes, this approach suggests a systemic rejection of the post-war trading order.
“The framing is also problematic – they are reciprocal in the face of perceived ‘unfairness’ to the US rather than specific economic harms. It appears that Trump or the United States can redefine any trade policy difference as unfairness and reach for tariffs. This gives rise to a high level of uncertainty.
“Australia finds itself in a particularly difficult position despite seemingly favourable circumstances: the US maintains a trade surplus with Australia (something Trump typically values), Australia imposes no direct tariffs on US goods and has been a steadfast security ally. Yet even these advantages may not secure an exemption.”
Although there may be some impact on Australian trade to the United States through the implementation of the 10 per cent baseline tariff, the biggest impacts to our supply chain and export industry will likely be felt through the more extensive taxation on goods from some of Australia’s major trading partners, according to CreditorWatch Chief Economist Ivan Colhoun.
Those importing from China (34 per cent), Japan (24 per cent) and South Korea (25 per cent) have all been stung with significant increases, while the European Union has been hit with a 20 per cent tariff.
“Australia has been hit with a 10 per cent reciprocal tariff, the low end of reciprocal tariffs,” Colhoun says.
“We are not big exporters to the US (around $15 billion last year), so this in isolation is not a big deal for the overall economy. For context, China’s tariffs hit around $30 billion of goods previously and did not derail growth.
“More important for Australia were larger than expected reciprocal tariffs announced on other big countries, including Australia’s major Asian trading partners.
“That is where the impact on our growth will mainly come from, rather than through direct impact on tariffed Australian goods.
“Next, we must assess the degree of retaliatory tariff action by impacted countries – that could compound into an even larger negative economic shock.”
Monash Business School Professor of Econometrics and Business Statistics Professor Robert Brooks echoes this sentiment, and says the indirect impacts of the tariffs could be more damaging that the direct effects.
“The direct impact of Trump’s tariffs on Australia’s economy will probably be minimal. However, the indirect effects could be more significant – particularly if Australia chooses to engage in a tit-for-tat trade war, which would ultimately dampen global economic growth,” he says.
“What happens to growth in China will be critical. Any slowdown there, particularly as a result of escalating trade tensions, could have ripple effects for the Australian economy.
Australia’s beef exports look set to have the most uncertain immediate future. $3 billion of Australian beef was imported to the United States last year.
Trump earmarked the current beef trade relationship between Australia and America as a key driver for the implementation of the tariff policy.
“They’re wonderful people, and they have wonderful everything,” Trump said. “But they ban American beef. Yet we imported $3 billion of Australian beef from them just last year alone.”
Professor Brooks says the beef export supply chain will likely need to look to new pastures for some of its product.
“Even though we’ve been called ‘wonderful people,’ Australia’s beef exports are facing tariffs as a result of a biosecurity measure. Regardless, our beef industry will need to look for alternative markets to stay viable.
“I do see the government is preparing to offer financial support, but this is really about more than subsidies. The key will be opening up new market access and negotiating better trade routes for our agribusinesses.”
Professor of Logistics and Supply Chain Management Dr Vinh Thai expects a “sudden increase” in demand for goods in the US prior to the tariffs taking effect, which could have a broadly negative impact on our supply chain.
“From now until the reciprocal tariffs are implemented, we may see a very sudden increase in the demand from the United States on things like meat exports from Australia, and other major trading nations.”
“The sudden increase in demand is not good because it may disrupt the normal patterns of transportation and supply chain, put everything in chaos, and potentially increase the cost of transportation and freight rates.”
“The increase in freight rates will lead to a higher cost of importation and could lead to imported products being more expensive, for example, at the supermarket.”
“We have been talking about supply chain disruptions and supply chain resilience for some time, as well as possible solutions. When we see a trading partner, like the United States, impose these tariffs, then we see an immediate negative effect.”
“Business can mitigate this by mapping their supply chain, giving them a better chance to prepare and respond in situations like this.”
Prime Minister Anthony Albanese was quick to respond to the broad tariff announcement, and said the measures “have no basis in logic”, but “no one got a better deal than Australia”.
Albanese has also ruled out the implementation of reciprocal tariffs as they would hurt the US people the most.
Australia has held a free trade agreement with the United States since 2005 and has not implemented tariffs on American goods in the past decade.
The ABC has reported Australia is prepared to take the US to the World Trade Organisation to accuse it of breaching the agreement.
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