Former U.S. President Donald Trump frequently uses the term "tariff," even calling it "the most beautiful word." He began using tariffs during his first term and has stated his intention to leverage them again in a second term, aiming to secure more favorable agreements from countries that trade with the United States. He believes tariffs are a powerful tool for negotiation and economic leverage.
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03-12, 2025Canada was one of the early targets of Trump's tariff policies, with tit-for-tat retaliatory measures escalating into a full-blown trade war. Outgoing Canadian Prime Minister Justin Trudeau believes this trade war will persist "for the foreseeable future." China was also impacted by the new tariffs and warned that it was prepared to confront a "tariff war, trade war, or any other form of war" and would "fight to the end." These trade disputes highlighted the potential for tariffs to disrupt established economic relationships.
Now, Australia faces a similar risk. Australian aluminum and steel exports are facing tariffs, which will deal a significant blow to Australian manufacturers. The U.S. is imposing a 25% tariff on all imported aluminum and steel, and Australian Prime Minister Anthony Albanese's request for a tariff exemption has been denied. White House spokesperson Karoline Leavitt stated, hours before the tariffs took effect, that Trump "considered it, considered the opposition," and ultimately decided against granting the exemption. This decision underscores the potential impact of U.S. trade policy on global partners.
Analysts believe that Trump's tariff policies mark a "turning point" in the way the U.S. approaches global trade and warn that more tariff measures could be forthcoming from the White House. So, what exactly is a tariff? A tariff is a tax levied when goods are transported from one country to another, essentially a tax on imported goods. Tariffs are often used to protect domestic industries or to exert economic pressure on other nations.
For example, Country A exports a product to Country B for $100. Country B imposes a 10% tariff on that trade. When the product arrives in Country B, the importing company must pay $110 – which includes the $100 product price and the $10 tax. Wendy Cutler, vice president of the Asia Society Policy Institute and a former U.S. trade negotiator, says the increased cost is often (but not always) passed on to consumers. "President Trump has consistently said that foreign countries pay the tariffs, but that's not correct," Ms. Cutler said. "Who pays that extra $10 cost? It's the importer. The question is: does the importer pass some of that cost on to the consumer? Or do they squeeze their overseas client and ask them to lower their costs and sell the product for less?" The impact of tariffs can vary depending on how businesses respond to the increased costs.
Most economists warn that tariffs will drive up prices for U.S. consumers. Research from the Peterson Institute for International Economics suggests that tariffs imposed on Canada, Mexico, and China cost the typical American household more than $1200 (about AU$1900) per year. Donald Trump has repeatedly denied the notion that tariffs lead to inflation. Speaking to the U.S. Congress, he said: "There may be some very small disturbances, but we are not concerned about that, and it will not be of any great effect." This divergence in opinion highlights the ongoing debate surrounding the economic consequences of tariffs.
Trump has already ordered tariffs on imported goods from certain countries, as well as on certain types of imported products. Specifically: On February 4, a new 10% tariff was imposed on Chinese imports, which doubled to 20% a month later (Trump had already imposed tariffs of up to 25% on Chinese imports during his first term, with the new tariffs added on top of that). On March 4, a 25% tariff on imports from Canada and Mexico took effect. But Trump later signed an order exempting imports covered by previous trade agreements. The 25% tariff on all steel and aluminum imports (including those from Australia) took effect at 12:01 a.m. Wednesday Washington time. Trump threatened to raise tariffs on Canadian steel and aluminum imports to 50% as part of an escalating trade war with that country. These actions demonstrate the breadth and potential volatility of Trump's trade policies.
Beyond targeting specific countries and commodities like steel and aluminum, Trump also wants all trade with the U.S. to be on a "reciprocal" basis, which could mean more tariffs for trading partners. Under a reciprocal tariff plan, if a foreign country taxes U.S. exports in any way, the U.S. could impose a similar tax on imports from that country. This could include Australia's Goods and Services Tax (GST), although it is hoped that Australia could be spared, as it generally runs a significant trade deficit with the U.S. The concept of reciprocal tariffs could significantly alter global trade dynamics.
"This country is being ripped off by every country in the world, by every company, and we're being ripped off like never before," Trump said in a recent interview with Fox News. "All we have to do is take it back. We're going to take back a lot." Trump hopes to achieve several goals through tariff policies, including: creating a widespread perception among Americans that they are getting good trade deals; encouraging international companies to establish production facilities in the U.S. instead of simply shipping products to the U.S.; and, in turn, boosting U.S. manufacturing capacity, particularly in the production of metals that can be used to make defense military equipment. These objectives reflect Trump's broader economic nationalism and desire to strengthen the U.S. economy.
Imposing tariffs on steel and aluminum imports is not entirely new. During his first term, Trump announced a 10% tariff on aluminum and a 25% tariff on steel, but granted exemptions to Australia and other close trading partners. Australia produces steel and aluminum domestically, then ships it to the U.S. However, Australian company BlueScope, for example, also operates in the U.S. and employs Americans there to manufacture steel. This steel would not be subject to tariffs because it is not imported. Thus, the goal here is to incentivize more of this type of investment that benefits America. The focus is on encouraging domestic production and job creation within the United States.
Furthermore, Trump has used tariffs as a tool to pressure trading partners. For example, he said tariffs on imports from Mexico and Canada were intended to force those countries to stop illegal immigration and drug smuggling across the border. (Canada has accused Trump of using tariffs to try to weaken its economy to make Canada the "51st state"). Trump has also argued that revenue generated from tariffs will increase America's wealth. The U.S. president and his advisors have repeatedly justified imposing reciprocal tariffs on all trading partners as simply a matter of fairness. This approach highlights the use of tariffs as a political and economic bargaining chip.
It's a simple argument – if they tax our exports, we'll tax their imports the same amount. But Ms. Cutler says the U.S. imposing tariffs on its trading partners is also a departure from the core belief that "tariffs are barriers, and lowering tariffs… promotes world peace and prosperity." "So, I think this is a real turning point in trade policy," she said. "The U.S. has not announced that it's leaving the World Trade Organization, but by pursuing reciprocal tariffs in many ways, we are effectively exiting the WTO, because we no longer subscribe to a core principle of the multilateral trading system." This shift in policy could have significant implications for the future of global trade relations.
When Trump first imposed tariffs on aluminum imports in 2018, Australia negotiated an exemption after agreeing to limit its exports to the U.S. But an executive order signed by Trump stated that Australia "disregarded its verbal agreement." His chief trade advisor, Peter Navarro, told ABC: "Many countries got exemptions, not just Australia, many other countries, and every country abused those exemptions." When asked if it was still possible for Australia to get an exemption in the future, he said: "The policy is no exemptions, no exclusions, and if the President changes his policy, that will change. But 'no exemptions, no exclusions' exists as a policy for a very good reason. Because when our country makes these gestures of good faith to our friends, they take advantage of us, and that's not going to happen again." This reflects a hardening stance on trade negotiations and a reluctance to grant exemptions.
Last year, Australia exported 223,000 metric tons of steel and 83,000 metric tons of aluminum to the U.S. If the tariffs have their intended effect, the higher prices will reduce U.S. demand for these exports, but it is difficult to predict the magnitude of the impact due to so many factors. Global demand for the raw materials used to produce steel and aluminum could also decline as U.S. manufacturers look for cheaper alternative materials. Economists like Scott French at the University of New South Wales believe this could ultimately have the most adverse impact on the Australian economy, as iron ore accounts for more than one-fifth of Australia's exports. The ripple effects of these tariffs could extend beyond the immediate trade relationship.
The impact of Trump's full suite of tariffs (including those still under consideration) on Australia is expected to be more widespread. The U.S. is a significant export destination for meat and other agricultural products, and tariffs on these products could be particularly damaging to rural economies. Australian companies will also feel the knock-on effects of a more uncertain global business environment, supply chain disruptions, increased costs, and foreign exchange volatility. An economic slowdown in China (Australia's largest trading partner) due to tariffs could have a particularly adverse impact on demand for Australian imports and depress commodity prices. The interconnectedness of the global economy means that trade policies can have far-reaching consequences.
But tariffs could also create benefits for Australian exporters. If Trump's reciprocal tariff regime results in higher tariffs on other countries than on Australia, this could give Australian exporters a new competitive advantage in the U.S. If other countries impose retaliatory tariffs on U.S. imports, this could increase demand for tariff-free Australian imports in those markets. While tariffs generally pose risks, they can also create opportunities for countries that are strategically positioned to benefit from shifts in global trade flows.
