Tariffs function as taxes on imported goods, increasing their prices and discouraging trade. Historically, they have been used to shield domestic industries from foreign competition. By making imports more expensive, tariffs reduce demand for foreign products.

During his first term, President Trump introduced a 25% tariff on steel and a 10% tariff on aluminum. While Australia negotiated an exemption in exchange for supply limits, the broader effect in the U.S. was a reported 2.4% rise in aluminum prices and a 1.6% increase for steel. Though tariffs may seem like penalties for overseas suppliers, their costs are often borne domestically through higher prices and trade reductions. The U.S. economy, however, is less reliant on international trade (24% of GDP) than countries like Canada, where trade accounts for 67% of GDP.

The Latest U.S. Trade Tariffs

Within his first two weeks back in office, President Trump invoked emergency powers to impose new tariffs:

• Canada: An additional 25% tariff on imports, with energy resources facing a reduced 10% tariff. Canada responded with its own 25% tariffs on agricultural and household goods. Given that 77% of Canada’s exports went to the U.S. in 2023, the economic impact is significant.
• Mexico: A 25% additional tariff on imports from Mexico. In response, Mexico imposed an equivalent tariff on U.S. goods.
• China: A 20% additional tariff on Chinese imports. In 2024, the U.S. trade deficit exceeded $900 billion, with China accounting for $270 billion of that total. China has responded with countermeasures, including a 15% tariff on key agricultural imports like chicken, wheat, and cotton, as well as a 10% tariff on dairy, beef, and fruit. Additionally, China has restricted exports of critical minerals and lodged a complaint with the World Trade Organization.

Industry-Specific Tariffs and Investigations

• Steel: The original 25% tariff on steel imports will fully resume on March 12, 2025, ending previous exemptions negotiated with countries like Australia.
• Copper: While no tariffs have been imposed on copper, an investigation has been launched into potential national security risks associated with copper imports.
• Timber and Paper Products: No trade restrictions have been enacted yet, but the administration has ordered an inquiry into the security implications of timber, lumber, and related products.
• U.S. Tech Companies: The administration has voiced concerns over digital services taxes (DST) imposed on American tech firms by foreign governments. While Australia does not implement a DST and aligns with OECD digital tax reforms, other countries’ DST policies could trigger U.S. retaliatory tariffs.

Could Australia Face Tariffs?

Although Australia enjoys a trade surplus with the U.S., specific industries could be affected—particularly steel and aluminum. Major U.S. imports into Australia include financial services, telecommunications, travel services, royalties, and vehicles. Meanwhile, Australia exports financial services, gold, meat, transport services, and vaccines to the U.S.

Implications for Australia

Australia’s economy could feel the indirect effects of escalating trade tensions. China, Australia’s largest trading partner, accounted for 26% of the country’s total trade in 2023. If China’s economy slows due to the trade war, Australia’s growth could suffer.

For Australian businesses, the primary concerns are uncertainty and volatility. Economic instability can stifle growth while increasing costs. Companies reliant on Chinese manufacturing or supply chains should prepare for potential price hikes and logistical challenges.

Moreover, if U.S. export markets contract, other nations may seek alternative buyers, leading to potential market saturation and downward pressure on prices. Businesses must remain vigilant and adaptable in the face of these shifting trade dynamics.

Pitt Martin Group is a CPA accounting firm, providing services including taxation, accounting, business consulting, self-managed superannuation funds, auditing and mortgage & finance. We spend hundreds of hours each year on training and researching new tax laws to ensure our clients can maximize legitimate tax benefit. Our contact information are phone +61292213345 or email info@pittmartingroup.com.au. Pitt Martin Group is located in the convenient transportation hub of Sydney’s central business district. Our honours include the 2018 CPA NSW President’s Award for Excellence, the 2020 Australian Small Business Champion Award Finalist, the 2021 Australia’s well-known media ‘Accountants Daily’ the Accounting Firm of the Year Award Finalist and the 2022 Start-up Firm of the Year Award Finalist, and the 2023 Hong Kong-Australia Business Association Business Award Finalist.

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By Yvonne Shao @ Pitt Martin Tax