With the execution of global reciprocal tariffs, US President Donald Trump has issued his ‘declaration of economic independence for America’. The immediate direct effect on the Australian economy will likely be small, with more risk from the confluence of tariffs on its key trading partners. But the global effects of the United States’ tariff regime will extend beyond the economic effects, with implications for America’s reputation as a trusted and reliable partner. All the while, China stands ready to fill the gap.
With Trump’s latest executive order, from midnight on 3 April the US will impose far-reaching tariffs on other countries to compensate for the alleged combined impact of foreign countries’ tariffs and non-tariff barriers on US exports. Emphasising the ‘fairness’ of the approach in a White Houe Rose Garden address on 2 April, Trump said the reciprocal tariffs of up to 50 percent equated to just half of the trade measures levied by those countries against America. These were complemented by a baseline tariff of 10 percent on goods from every country—except for Canada and Mexico, which are already subject to tariffs of 25 percent. The 10 percent would not be added to goods already subject to tariffs, such as semiconductors, steel and aluminium.
The 10 percent levied against Australian goods exports to the US will have a minimal impact on Australia’s economy, despite being estimated to constitute a direct cost the Australian industry of US$3.3 billion. Speaking to the media after the tariff announcement, Prime Minister Anthony Albanese said the tariffs were unwarranted and ‘not the act of a friend’. But he also sought to reassure, noting the exports constituted less than 5 percent (US$16.6 billion) of Australian goods exports. By comparison, more than 30 percent of Australia’s exports are sold to China.
Australia provides duty free access to US imports under the 2005 Australia-US Free Trade Agreement. However, the Trump administration’s concern with Australia is with what it considers non-tariff barriers as outlined in the findings of the USTR report on Foreign Trade Barriers (PDF), of 1 April. The report details several longstanding US concerns with Australian biosecurity regulations on agricultural products (certain meat and fruit imports), issues with Australia’s policies on imported pharmaceuticals (which mandate a price for drugs under the Pharmaceutical Benefits Scheme) and payment for news content on social media. While it doesn’t mention Australia’s recent social media protections for children, this has also been raised by the US tech industry as a non-trade barrier.
The 10 percent tariff scenario will impose short-term direct costs of about US$1.6 billion on Australian industry. Most affected will likely be Australian beef and other meat products, exports of which to the US were worth US$4 billion in 2024 and accounted for more than a quarter of US imports of foreign beef. The US has been Australia’s largest market for beef in recent years. Despite having a large beef industry, the US relies on certain imported beef products. This could give a degree of leverage as Canberra progresses long running negotiations with Washington on the issue. Albanese has ruled out any compromise on other US concerns, in particular social media protections and the Pharmaceutical Benefits Scheme.
Australia’s trade-exposed economy will be more vulnerable to second and third order effects as some of Australia’s key trade partners respond to these new tariffs. While tit-for-tat tariffs may depress the Australian economy, greater impact will likely come from regional partners adapting trade strategies and adjusting supply-chains to minimise their exposure, and from businesses delaying investment decisions due to uncertainty around US and other governments’ policies.
Four of Australia’s top five trading partners, accounting for 44.3 percent of Australia’s two-way trade in 2023–24, are subject to higher US tariffs: China (a 34 percent tariff), Japan (24 percent), South Korea (26 percent) and India (24 percent). Developing or emerging economies, such as Vietnam (46 percent) and Indonesia (32 percent), will likely find it harder to absorb the effect of tariffs, due to their reliance on export-driven growth and deep integration in global manufacturing supply chains. The resumption on 2 April of exclusion of goods from China and Hong Kong from duty-free de minimis treatment will be an additional hit to the Chinese economy.
The Indo-Pacific is home to most of the world’s people. It accounts for 60 percent of global GDP and two-thirds of global economic growth. Since former president Barack Obama’s much vaunted Pivot to Asia from 2011, the US has sought to focus more strongly on the region for strategic and economic reasons. Despite some efforts such as the Indo-Pacific Economic Framework, US protectionism has hampered meaningful progress on US trade with the region. By comparison, China is likely the top trading partner for most countries in the world, particularly in Asia. As China actively competes with the US for influence with these countries, steep US tariffs on their exports may cause them to orientate away from the US market, deepening this trend. Tariffs will undermine US efforts to establish itself as a preferred partner in the Indo-Pacific region while providing China with ammunition to support its claims of American self-interest and unreliability.
