Between January 30 and February 2, 2025, global Google searches for “tariffs” surged by an astounding 900% compared to the previous year. This blog post examines the true implications of tariffs.
Who Bears the Cost of Tariffs?
Tariffs raise the prices of imported goods and decrease the trade flow of those goods or services. Traditionally, tariffs are employed to shield specific domestic industries by curbing competition, thereby increasing the cost of foreign rivals and lowering demand. During his first term, President Trump instituted a 25% global tariff on steel and a 10% tariff on aluminum (which Australia negotiated down to zero by accepting supply limits instead). As a result, the prices of aluminum and steel in the US domestic market reportedly rose by 2.4% and 1.6% respectively. The financial burden of tariffs is not directly shouldered by foreign suppliers, but rather through decreased trade and higher domestic prices, especially for common goods and services.
However, the United States will likely experience the adverse effects of tariffs less sharply than many of its trading partners because trade constitutes only about 24% of the US gross domestic product (GDP), whereas it accounts for 67% of Canada’s GDP.
Current Status of US Trade Tariffs
During a conversation with shock jock Joe Rogan amid his election campaign, Donald Trump claimed, “This country can become rich with the proper use of tariffs.”
In his second week in office, President Trump invoked emergency powers to counter the “extraordinary threat” of illegal aliens, drugs, and fentanyl entering the US by instituting the following tariffs:
- Canada: An additional 25% tariff on imports from Canada (excluding energy resources, which have a reduced additional tariff of 10%). Canada retaliated by imposing its own 25% tariffs on various agricultural products and household goods. As a trading nation, exports account for two-thirds of Canada’s GDP, and in 2023, the US made up 77% of Canada’s total goods export.
- Mexico: An additional 25% tariff on imports from Mexico, to which Mexico responded with its own 25% tariff on US goods.
- China: An additional 20% tariff on imports from China. The US trade deficit exceeded $900 billion in 2024, with China responsible for around $270 billion of that. The additional tariff on postal shipments from China to the US has been temporarily lifted for items valued under $800 until the US Postal Service can collect the tariff. In response, China has imposed additional tariffs on certain US imports, including a 15% tariff on agricultural products like chicken, wheat, corn, and cotton, and a 10% tariff on fruits, vegetables, dairy products, pork, beef, and sorghum. Export controls have been placed on some critical minerals, and China has filed a complaint with the World Trade Organization.
Industry-Specific Tariffs and Investigations
- Steel Imports: As of March 12, 2025, the original 25% steel tariff will be reinstated without the bilateral agreements that had previously diluted it with many nations, including Australia.
- Copper Imports: While no tariffs have been imposed, the President has initiated an investigation into the national security threat posed by copper imports.
- Timber, Lumber Products: No actions or tariffs have been imposed yet, but the President has ordered an investigation into the security risks associated with timber, lumber, and derivative products like paper.
- US Tech Giants: The President has expressed concern over digital services taxes (DST) imposed on US technology companies and has vowed to respond with tariffs and other measures. Australia does not impose a DST and instead aligns with the OECD reforms on digital taxing rights.
Will Australia Face US Tariffs?
Australia maintains a significant trade surplus with the US, which typically makes the imposition of tariffs less probable. However, specific industries could be affected by product or industry-based tariffs, such as those on steel and aluminum.
The largest American imports to Australia include financial services, travel services, telecoms/computer/information services, royalties, and trucks. Conversely, Australia’s largest exports to the US are financial services, gold, sheep/goat meat, transportation services, and vaccines.
Impacts of Trade Wars on Australia
Australia is indirectly impacted by changes in demand. China, Australia’s largest two-way trading partner, accounted for 26% of the nation’s goods and services trade in 2023. If Chinese demand wanes due to a trade war, Australia’s economy could slow. President Trump’s approach to international and trade relations often involves bold initial policies that align with his election rhetoric, which are then partially or fully rolled back after securing concessions. For Australia, there is a risk that China may agree to reduce the US trade deficit by purchasing more from the US, potentially to the detriment of Australian suppliers.
For Australian businesses, uncertainty and volatility present significant challenges. Uncertainty can dampen economic activity and affect business revenues, while costs may rise.
Businesses dealing in products manufactured and distributed from China or other trading partners directly affected by tariffs should be vigilant for supply chain disruptions and potential cost increases.
If US export markets contract, there is a risk that other trading nations may attempt to dump their products to mitigate their losses.
Ban on Foreign Property Purchases
The government has announced a temporary ban on foreign investors purchasing established homes from April 1, 2025, to March 31, 2027. This measure aims to curb foreign “land banking.” From April 1, 2025, foreign investors, including temporary residents and foreign-owned companies, will be prohibited from acquiring established dwellings unless they meet specific exemptions, which are limited. Additionally, foreign investors purchasing vacant land will be required to adhere to development conditions ensuring the land is used productively within a reasonable timeframe.
