Aussie exporters face potential threat of US tariffs, BDO warns

Australian exporters could soon face additional tariffs from the US with Donald Trump committed to continuing his America First policy in his second term of presidency, BDO has warned.

This policy could potentially result in a range of tariffs being imposed on certain goods imported into the US, including those from Australian exporters.

BDO tax partner Leonie Ferretter said while Australia and the US entered into a free trade agreement 20 years ago, the Australian-United States Free Trade Agreement (AUSFTA) would not necessarily protect Australian exporters.

Ferretter noted that when Trump proposed his America First policy for trade in his previous term, the Australian prime minister at the time, Malcolm Turnbull, was able to successfully obtain an exemption from the tariffs. However, the AUSFTA did not play a part in obtaining that exemption.

"Rather, it was the US’ significant trade surplus with Australia and our strategic military alliance that ultimately persuaded the US President of the time to approve the exemption," she said.

She also noted that Donald Trump has expressed concerns about broad free trade agreements that do not serve the US's best interest.

"During his previous term, he exited the US from the Trans-Pacific Partnership Agreement negotiations and actively worked to remove the 30-year-old North America Free Trade Agreement (NAFTA) between the US, Canada and Mexico. The agreement was replaced in 2020 with the United States-Mexico-Canada Agreement," she said.

"Excluding comments made about tariffs on goods from Mexico, Canada, and China, Donald Trump indicated plans during his election campaign to impose tariffs of ten per cent to twenty per cent for all countries."

Ferretter warned that a range of additional tariffs could be implemented under new trade policies.

These include anti-dumping and countervailing duties imposed where goods are exported to a country with an export price lower than the domestic market (or subsidised price) and material injury is caused to the industry in the importing country as a result of this.

Section 301 tariffs, imposed by Presidential Proclamation under the Trade Act of 1974, where any foreign government act, policy or practice violates an international trade agreement or is unjustified, unreasonable, or discriminatory, and that burdens or restricts US commerce.

There are also Section 232 duties imposed under the Trade Expansion Act of 1962, where the president is authorised to impose tariffs to restrict imports that threaten the national security of the US.

Section 201 'Safeguard' Tariffs can also be applied when import surges cause or threaten injury to US industries.

Section 221 Balance of payment quotas and tariffs can be imposed against countries with balance of payment surpluses. Section 338 tariffs can apply to merchandise originating in countries that have discriminated against the commerce of the US.

Ferretter also warned that the World Trade Organization’s Appellate Body, the trade dispute settlement body, is not currently operational as the US has continued to block the appointment of judges to hear trade disputes between countries.

"This means there is no international arbitration available to countries that have additional tariffs applied," she said.

While there is very little insight into what additional tariffs, if any, the US may impose, Ferretter said there are a range of practical steps that Australian exporters can take.

Australian exporters should map and understand their organisation’s supply chain and ability to make changes if needed, she explained.

They should also accurately assess the real country of origin of the goods they are manufacturing using legislated rules of origin and confirm the accuracy of the tariff codes used in the US at the time of import.

Given tariffs are mostly levied on values, exporters should also ensure the customs values of the goods are accurate, and where appropriate, that all non-dutiable costs and charges are invoiced separately from the goods.

For related parties, Ferreter said organisations should ensure they understand the impact of tariff increases on transfer pricing arrangements and where the increased tariffs are allocated.

"[Australian exporters should also] research and understand alternative markets, particularly if additional tariffs will make their goods unprofitable to sell in the US," she said.

"You should also understand your industry and whether or not goods diverted from the US market in response to possible additional tariffs are being dumped in Australia and injuring your industry so that anti-dumping investigations can be considered."