Global Concern Over New Tariff Policies
Global Google searches for the word “tariffs” spiked dramatically between January 30 and February 2, 2025, showing a 900% increase compared to the previous 12 months. This surge reflects growing concerns about recent trade policy changes initiated by the Trump administration in its second term.
Understanding Tariffs
Tariffs increase the price of imported goods and reduce trade flows of affected products and services. Traditionally used to protect specific domestic industries by reducing competition, tariffs artificially increase the price of foreign competitors and reduce demand.
During his first term, President Trump imposed a 25% global tariff on steel and a 10% tariff on aluminum, with Australia managing to negotiate an exemption with supply limits instead. Studies showed these tariffs led to a 2.4% increase in aluminum prices and a 1.6% increase in steel prices in the domestic US market.
It’s important to understand that the cost of tariffs is not borne by overseas suppliers directly, but indirectly through reduced trade. Domestically, they’re felt through higher prices, particularly for common goods and services.
Recent US Tariff Actions
In February 2025, President Trump used emergency powers to address what he called an “extraordinary threat” of illegal immigration, drugs, and fentanyl entering the US. This resulted in significant new tariffs against major trading partners:
Canada
- 25% additional tariff on most imports from Canada
- Reduced 10% tariff on energy resources
- Canada responded with its own 25% tariffs on US agricultural products and household good
- This is particularly significant as exports represent two-thirds of Canada’s GDP, with the US accounting for 77% of Canada’s total goods exports
Mexico
- 25% additional tariff on imports from Mexico
- Mexico has responded with equivalent 25% tariffs on US goods
China
- 20% additional tariff on imports from China
- The additional tariff on postal shipments from China has been temporarily suspended for items valued under $800
- China has responded with targeted tariffs, including 15% on US agricultural products and 10% on various food products
- China has also implemented export controls on critical minerals and filed a complaint with the World Trade Organisation
Industry-Specific Measures
Beyond country-specific tariffs, several industry-targeted actions have been taken:
- Steel imports: The original 25% steel tariff will resume from March 12, 2025, without the bilateral agreements that previously reduced its impact
- Copper imports: An investigation has been ordered into the threat to security from copper imports
- Timber and lumber products: Similar security investigations have been launched
- US tech giants: The administration has expressed concern about digital services taxes imposed on US technology companies by other nations
Will Australia Face US Tariffs?
Australia maintains a large trade surplus with the US, which typically makes tariffs less likely. However, specific industries may still be impacted by product or industry-based tariffs, such as the resumed steel and aluminum tariffs.
Australia’s largest exports to the US include financial services, gold, sheep/goat meat, transportation services, and vaccines, while major US imports to Australia consist of financial services, travel services, telecoms/computer/information services, royalties, and trucks.
The Pattern of Trade Policy
Analysts have observed a pattern in President Trump’s approach to international trade relations. Typically, bold policies are announced that align with his election promises, followed by partial or full walkbacks after concessions have been secured or claimed. For Australia, there’s a risk that China might agree to reduce the US trade deficit by purchasing more American goods, potentially at the expense of Australian suppliers.
Impact on Australian Business
For Australian businesses, the primary challenge is uncertainty and volatility. This uncertainty slows economic activity and impacts business revenue while potentially increasing costs.
Companies selling products manufactured or distributed from China or other directly impacted trading partners should watch for supply chain disruptions and cost increases. If US export markets contract, there’s also a risk that other trading nations may “dump” their products to offset losses.
Additionally, since China is Australia’s largest two-way trading partner (accounting for 26% of goods and services trade in 2023), any slowdown in Chinese demand resulting from trade tensions would have significant ripple effects on the Australian economy.
