Between January 30 and February 2, 2025, there was a +900% rise in global Google searches for the word “tariffs,” compared to the previous year.   We investigate the true nature of tariffs.

 

Who pays for tariffs?

 

Tariffs reduce trade flows for that product or service while increasing the cost of imported items. 

 

Tariffs, which increase the cost of foreign rivals while decreasing demand, have traditionally been employed to protect specific domestic sectors by limiting competition.   During his first term, President Trump imposed a 10% global tariff on aluminium and a 25% global tariff on steel, which Australia was able to remove by imposing supply limits.   According to reports, the impact resulted in a 1.6% increase in steel prices and a 2.4% increase in aluminium prices in the domestic US market.   Tariffs are not paid for directly by foreign suppliers, but rather indirectly through reduced trade and increased domestic expenses, particularly when the goods and services are similar.

 

However, because trade accounts for only around 24% of US GDP, compared to 67% of Canada’s GDP, the negative impact of tariffs will be felt less strongly in the United States than in many of its trading partners.

 

The present state of US trade tariffs

During his second week in office, President Trump imposed the following tariffs under emergency powers to combat the “extraordinary threat” of drugs, fentanyl, and illegal immigration into the United States:

 

• The U.S. imposes a 25% additional tax on Canadian imports. In response, Canada imposed 25% tariffs on a number of household and agricultural supplies. Canada is a trading nation, as exports account for two-thirds of its GDP. In 2023, the United States received 77% of Canada’s total goods exports. 
• Imports from Mexico are subject to an additional 25% tariff. In reaction, Mexico levied a 25% tariff on US products. 
• Imports from China will be subject to an additional 20% tariff. China accounts for more than $270 billion of the US trade imbalance, which was more than $900 billion in 2024.   Since then, until the US Postal Service can collect the additional fee, the tariff on postal shipments from China to the US for commodities valued less than $800 has been temporarily suspended. China has replied by imposing further charges on some US imports, including a 10% levy on fruit, vegetables, dairy products, pig, cattle, and sorghum, as well as a targeted 15% tariff on agricultural products such as chicken, wheat, maize, and cotton. Export restrictions apply to certain critical minerals. 

 

Will the United States put tariffs on Australia?

 

Tariffs are rarely applied in Australia due to the country’s huge trade surplus with the United States.   Tariffs based on items or sectors, such as steel and aluminium, may have an impact on specific industries.

 

Financial services, tourism, telecommunications, computer and information services, royalty, and trucks are the most popular American imports into Australia.   Financial services, gold, sheep and goat meat, transportation services and vaccinations are among Australia’s most valuable exports to the United States.

 

Trade wars’ consequences on Australia

 

Demand has an indirect effect on Australia.   In 2023, China accounted for 26% of Australia’s goods and services trade, making it our largest two-way trading partner.   If a trade war reduces Chinese demand, Australia’s economy will stall. 

 

However, there is a pattern in President Trump’s approach to trade and international relations that suggests that a full-fledged trade war may not occur: A bold policy or line is announced, telling the American people a story that aligns with his election sentiments, and then it is partially or completely retracted once concessions are made or secured. Australia faces the risk of China agreeing to reduce the US trade imbalance by purchasing more from the US as a result of these policy moves, which might harm Australian producers. 

 

Keep a watch out for new supply chain issues and potential cost increases for businesses who sell items created and supplied in China or through other trade partners who are directly affected by tariffs.

 

Other trade nations may also attempt to dump their goods in order to compensate for losses if US export markets diminish.