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In recent weeks, the topic of US tariff policy has captured significant attention, reflecting President Trump’s steadfast belief in the efficacy of tariffs as a policy instrument. The current US administration perceives tariffs not merely as tools for generating government revenue, but also as strategic instruments for negotiations and addressing alleged trade disparities. There has been a notable escalation of both threats and implementations of tariffs aimed at achieving these objectives.
For Australia, however, the landscape has not witnessed dramatic shifts in tariff treatment for its exports to the US. While a 25% tariff on steel and aluminium imports has been announced, the potential impact on Australia’s overall trade balance appears minimal given that these exports constitute a small fraction of the country’s total exports. Nevertheless, for specific industries and companies, the imposition of such a tariff could have serious repercussions.
Moreover, Australia’s trade dynamics with the US reveal a trade deficit, meaning the value of goods imported exceeds that of exports. This contrasts with nations like Canada, Mexico, Vietnam, and China, which run substantial trade surpluses with the US and thus face a higher risk of incurring significant tariffs. According to recent studies conducted by the Reserve Bank of Australia, the introduction of an additional 10% tariff could theoretically decrease Australian GDP by a mere 0.1%, indicating minimal immediate repercussions.
However, it is crucial to recognize that the global trade landscape is intricate and nuanced. Australia’s economic stability is intricately linked to its participation in free trade, as the history of the Australian economy suggests. A decline in global trade relations due to heightened tariffs is likely to hinder Australia’s economic growth, although the precise effects remain uncertain and are influenced by numerous variables.
Analyzing US tariff policies through the lens of broader regime changes may provide clarity. The post-1980s era, characterized by free-market ideologies and unhindered trade, appears to be fading. Instead, an increasingly protectionist global environment is emerging, wherein tariffs are employed as essential components of economic strategy, obstructing free trade. Nations are adopting inward-looking policies, prioritizing national security over traditional diplomatic approaches. Consequently, labor mobility across borders is also experiencing restrictions.
This shift introduces a new norm where tariffs are commonplace, contributing to the unsettling atmosphere felt by consumers and businesses alike. If such uncertainty persists, there is a tangible risk that economic actors may choose to defer spending or investment, a collective behavior that could lead to substantial economic ramifications.
Nevertheless, Australia’s resilience is bolstered by a floating exchange rate and the ability to implement both fiscal and monetary policy adjustments. These elements will be vital in cushioning the economy against potential downturns prompted by volatile US tariff policies and their impacts on global economic growth.
Sally Auld brings a wealth of experience from her previous role as chief investment officer at NAB Private Wealth and JBWere, now transitioning into her new position as chief economist for NAB.
Source
www.theguardian.com