Trade Wars & Tariffs
Global Google searches for the word “tariffs” skyrocketed by +900% between late January and early February 2025, reflecting heightened public interest in trade policies. Below, we explore what tariffs mean, their impacts, and the current state of US trade tariffs as of 29 April 2025.
What are Tariffs and Who Pays for Them
Tariffs are taxes levied on imported goods, increasing their prices and often reducing trade volumes. They’re typically used to protect local industries from foreign competition, but the costs aren’t borne by overseas suppliers. Instead, tariffs lead to higher domestic prices and reduced trade flows. For example, during President Trump’s first term, a 25% tariff on steel and a 10% tariff on aluminium (later exempted for Australia with supply limits) resulted in price rises of 1.6% for steel and 2.4% for aluminium in the US market.
The US feels the impact of tariffs less sharply than its trading partners, as trade accounts for only 24% of its GDP, compared to 67% for Canada.
Current US Trade Tariffs
In early 2025, President Trump used emergency powers to address perceived threats from illegal immigration, drugs, and fentanyl, implementing the following tariffs:
- Canada: A 25% tariff on most imports (energy resources at 10%). Canada retaliated with 25% tariffs on US agricultural products and household goods. In 2024, the US accounted for 77% of Canada’s goods exports, with exports making up two-thirds of Canada’s GDP.
- Mexico: A 25% tariff on imports, prompting Mexico to impose reciprocal 25% tariffs on US goods.
- China: A 20% tariff on imports, contributing to the US’s $900 billion trade deficit in 2024, of which China accounted for roughly $270 billion. The tariff on postal shipments under $800 was temporarily suspended pending US Postal Service adjustments. China responded with 15% tariffs on US agricultural products (e.g., chicken, wheat, corn, cotton) and 10% on others (e.g., fruit, veggies, dairy, pork, beef, sorghum), alongside export controls on critical minerals and a World Trade Organisation complaint.
Industry specific tariffs and investigations
- Steel Imports: From 12 March 2025, the 25% steel tariff resumed, overriding previous bilateral exemptions, including for Australia.
- Copper Imports: An ongoing investigation into the security risks of copper imports could lead to new tariffs.
- Timber and Lumber: Investigations into timber, lumber, and derivative products (e.g., paper) are underway, with potential tariffs on the horizon.
- Digital Services Taxes (DST): President Trump has threatened tariffs on countries imposing DST on US tech companies. Australia, aligned with OECD digital tax reforms, remains unaffected.
Will Australia face US tariffs?
Australia’s trade surplus with the US makes broad tariffs unlikely, but industry-specific tariffs, such as those on steel, could impact key sectors. Australia’s top exports to the US include financial services, gold, sheep/goat meat, transportation services, and vaccines, while major US imports to Australia include financial services, travel services, telecoms/computer/information services, royalties, and trucks.
Impacts of trade wars on Australia
Australia is vulnerable to indirect effects from global trade disruptions, particularly as China, its largest trading partner (26% of goods and services trade in 2024), faces US tariffs. A slowdown in Chinese demand could hamper Australia’s economy. President Trump’s pattern of bold policy announcements followed by partial concessions suggests a full-scale trade war might be avoided, but risks remain. For instance, China may increase US imports to reduce the trade deficit, potentially displacing Australian suppliers.
Australian businesses face uncertainty and volatility, which can slow economic activity and raise costs. Supply chain disruptions and price increases are likely for products manufactured in or distributed through tariff-affected countries like China. If US markets contract, other nations may dump excess products, further complicating Australia’s trade landscape.
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DISCLAIMER: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.
