You’ve probably seen headlines all over your feed today that Australia’s bid to be exempted from tariffs by the US is a no-go, meaning new taxes on certain exports are expected to come into effect from Wednesday.
US President Donald Trump’s been talking about tariffs for a while now — remember all the talk in the lead up to the November election? — so the announcement isn’t entirely coming out of left field. But it does have some big implications for our economy and where we go from here.
You best get seated because we’re about to delve into a quick economic lesson here.
What are these tariffs and why do they matter?
Tariffs are essentially a tax on a good from another country which contributes to a government’s revenue. They’re usually structured as a percentage of the value of the import and can vary based on where the goods are coming from. In this case, Trump’s announced a 25 per cent tariff on all steel and aluminium imports from Australia.
According to Trump’s address to Congress last week, tariffs are “making America rich again”. But as explained by CNN, it’s domestic businesses importing products into the country that usually pay the tariffs up front. In other words, American businesses importing materials into the United States are about to start paying more. Trump’s goal is supposedly to encourage American businesses to use American goods, but the reality is…. a little more complicated.
In some cases, there’s even an exemption process that allows companies to request relief from the tariffs, per the Australian Financial Review, if paying them would unduly hurt their business and there’s no alternatives to buy products from another country.
So about that 25 per cent tariff on Australian steel and aluminium Trump just announced.
Prime Minister Anthony Albanese has already slammed the tariffs as “unjustified” and assured Aussies his government is working on exemptions — similar to the ones negotiated by then-PM Malcolm Turnbull back in 2016.
“This is against the spirit of our two nations’ enduring friendship, and fundamentally at odds with the benefits that our economic partnership has delivered over more than 70 years,” he said.
“Friends need to act in a way that reinforces to our respective populations the fact that we are friends – this is not a friendly act.”
Australia has also ruled out the option of reciprocal tariffs, unlike other US allies like Canada.
Speaking to Sky News, Foreign Minister Penny Wong said the government was “not going to add to Australians’ cost of living”. Additionally, Albanese said tariffs and escalating trade tensions are “a form of economic self-harm and a recipe for slower growth and higher inflation”.
How will the tariffs impact Australia?
To put Trump’s latest announcement in perspective for our economy, it’s worth noting Australia currently sends about $800 million worth of steel and aluminium to the US every year. That’s no small amount and a 25 per cent tax on top of that is bound to make an impact, if Australian businesses are indeed the ones to cop it.
Our economy is pretty closely tied to global trade, and any disruption in trade relations between the US and other countries can have knock-on effects. Tariffs could increase costs for industries that rely on these materials, such as manufacturing, construction, and infrastructure.
In some cases, tariffs could disrupt global supply chains, and we all know the drawbacks of when that happens. (Remember COVID?) Given Australia is a part of many international production networks, higher costs for these raw goods could raise the price of goods and projects that depend on these materials.
So why is the Australian stock market dipping?
We’re dealing with a pretty interconnected financial system here, meaning confidence plays a huge role in what happens in our stock market. Unfortunately, as of Wednesday, Australian shares have continued to sell off in response to Trump’s announcement. The benchmark S&P/ASX 200 — a list of 200 major companies on the Australian stock market, used to track how well the Australian stock market is performing — slid 1.5 per cent in one hour of trading.
The sell-off equates to more than $38 billion wiped from the top 200 stocks’ combined $2.6 trillion market cap, per the AAP.
Over in the US, markets are pretty uncertain too, with the S&P500 down 0.76 per cent and the tech-heavy Nasdaq down 0.18 per cent, after giving up nearly 4 per cent on Monday.
So where do we go from here? Well, the Albanese government has indicated it’s still seeking to reverse this decision, so it might be a case of waiting and watching. More broadly, though, it has left a lot of markets nervous about what we’re in for with Trump 2.0.
There’s also a chance it could open up political debates just weeks out from a federal election, with the Opposition likely to address the impact of these tariffs as we deal with a cost-of-living crisis and inflationary pressures.
With inputs from the AAP.
Lead image: Getty
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