US tariffs could inadvertently advantage Australian exports, economist says

On 2 April, Trump imposed “reciprocal” tariffs on almost every country in the world, including 10 per cent tariffs on Australian imports set to take effect from 5 April.

Prime Minister Anthony Albanese labeled the imposition of tariffs “unwarranted” and “not the act of a friend,” pointing out that the tariffs violated Australia’s long-standing free trade agreement with the US.

The tariffs are unlikely to have strong direct impacts on Australia’s economy as a whole, given that the US makes up a relatively small share of Australia’s total export market.

However, because the 10 per cent tariff levied on Australian goods is lower than those applied to many other countries, Australian exports may now see greater demand from the US market.

“Any increase in tariffs is disappointing … but what's important is that Australia's tariff increase is smaller than many other countries, and what that means is Australia's exports are set to get more competitive than many other economies,” Ben Udy, lead economist at Oxford Economics Australia, told Accounting Times.

“[If] Australia and Europe are both exporting beef to the US, Australia's beef is now going to look cheaper than European beef, and so it may actually provide some boost to Australia's exports in that sense.”

Data from the Atlas of Economic Complexity showed that the top countries the US sourced beef imports from in 2023 were Canada (51 per cent), Mexico (30 per cent) and Australia (13 per cent).

In 2024, Australia exported US$4 billion of meat to the US in 2024 according to COMTRADE data.

Given that Canada and Mexico have each been hit with 25 per cent tariffs already, Australian beef imports would entail relatively smaller tariff costs, which could inadvertently boost US demand for Australian beef.

This would depend on the ability of United States producers to fulfill domestic demand, Udy said.

“If the US can easily increase its production of anything that it imports, it [could] do so at cheaper cost than imports can provide with these tariffs, and that would potentially harm Australian exports.”

“But the reason the US imports these things at the moment is that they can't produce these things as cheaply as can be done overseas, and it's not clear whether or not the tariff will close that gap.”

The tariffs would have unpredictable effects on domestic inflation in Australia, Udy said. On one hand, supply chain disruption would spark higher prices as businesses spend money to relocate their operations and adjust their value chains.

On the other side, surplus goods diverted away from the US market could reduce the prices of certain imports to Australia, lowering inflation but also potentially crowding out Australian producers. The tariffs would also slow down global economic activity, serving as a brake on inflation.

A global economic slow-down would have negative implications for Australia’s growth, as a small, open economy that relies heavily on commodity exports. Australia’s largest trading partner, China, was hit with an additional 34 per cent tariff on 2 April, which could negatively impact its demand for Australian commodities, including iron ore.

However, Udy noted that China has acted to offset the tariffs with domestic stimulus and would likely cut trade from other locations first before reducing its demand for cheap Australian iron ore.

“Australia is one of the cheaper producers of iron ore globally, and so to the extent that China reduces its demand for iron ore, it's likely to cut its demand for iron ore from other exporters before it stops buying from Australia.”

The tariffs have also upended global trading agreements, raising questions about the long-term stability of the post-war economic system.

Dr Nicola Charwat, senior lecturer of business law and taxation and Monash Business School, said the tariffs represented an abandonment of the post-war global trading order.

“The ‘liberation day’ tariffs represent the culmination of the abandonment of multilateralism and the turn to mercantile, power-based trade relations,” she said.

“I find these tariffs are particularly significant because they target essentially all trading partners simultaneously, regardless of alliance status or existing agreements. In contrast to the usual and occasional bilateral trade disputes, this approach suggests a systemic rejection of the post-war trading order.”

In a press statement, the White House claimed that “the post-war international economic system was based upon … incorrect assumptions,” notably referring to the system in the past tense.

The growth of trade as a share of GDP has slowed in the past decade, impacted by events ranging from the global financial crisis to the pandemic, Ben Udy explained.

After Trump’s first term, trade growth as a share of GDP flatlined. The tariff war is set to exacerbate this trend away from global trade.

“If in response to these tariffs, we see more countries putting up trade barriers, either in retaliation to the US or trying to protect their own domestic industries, then we may see a decline in trade as a share of GDP globally,” Udy said.

“I think that expansion of trade as a share of GDP is now over.”

Nigel Green, chief executive of deVere Group, predicted that Trump would be forced to roll back tariffs in the next six to 12 months, as their negative impacts on the US economy become apparent.

“Inflationary pressure will build, especially with US companies passing import costs on to consumers. We anticipate it won’t take long for the political pain of higher prices to outweigh any perceived geopolitical leverage,” Green said.

However, even if the US reversed the tariffs, Udy said that the uncertainty they caused would not fade quickly.

“We know that uncertainty about trade policy is already causing disruption in the global economy, and weighing on investment by companies globally, not knowing where they can build factories or where they should be investing and how they should be organizing their supply chains,” he explained.

“If Trump were to walk back these policies in a couple of months, that would not resolve that uncertainty.”