High speed tariffs
Rapidly evolving trade policy in the United States has heightened global uncertainty
US trade policy is now changing almost daily. This uncertainty could put the brakes on decisions around business investment.
Over its first two months, the new administration in the United States has announced a spate of tariff decisions on goods entering the country.
This has come at rapid pace with US trade policy changing nearly daily. This unprecedented pace of change is a key factor weighing on the global economy at present. Since January, the US has imposed tariffs on its largest trading partners —Canada, Mexico, and China — and indicated that reciprocal tariffs of varying degrees will extend to all trading partners from early April. Tariffs on steel and aluminium, including on imports from Australia, have also been put in place. Canada, Mexico, China, and the European Union are among the trading partners that have already imposed or announced retaliatory tariffs on imports from the US.
Unlike some countries, Australia is significantly less reliant on US demand for its exports. For instance, both Canada and Mexico rely on the US market to absorb almost 80% of total goods exports. For the EU and China, the figures are 20% and 15% respectively. Only 4% of Australia’s total goods exports go to the US (see Chart 1). Australia’s steel and aluminium exports to the US account for less than 0.2% of Australia’s total goods exports. Though tariffs on these products could hurt some domestic manufacturers in Australia, the economy-wide impact is expected to be muted. However, if US tariffs are extended to agricultural and pharmaceutical exports, as has been suggested, the share of Australia’s total goods exports impacted by tariffs could increase from 0.2% to as much as 1.5%.
Chart 1: Share of total goods exports sent to the United States in 2023
Demand from China, Australia’s largest export market, remains a key determinant of the impact of US tariff policy on Australia. In 2023, Australia sent almost 40% of its goods exports, dominated by resources and energy products, to China (see Chart 2). But China’s economy is slowing under strain from structural imbalances and demographic headwinds. Stimulus measures to date have not been forceful enough to reinvigorate the economy and further measures remain unclear. As tariffs mount, China’s economy could slow further, resulting in a moderation in demand for Australia’s exports.
Chart 2: Australia’s share of goods exports by destination country
More broadly, a growing wave of protectionism could weigh on global growth prospects. According to the Organisation for Economic Co-operation and Development, if the US raises bilateral tariff rates by a further 10% on imports from all trading partners and if all countries retaliate in equal measure, then global trade volumes would decline by as much as 2% over time. In such a scenario, trade-exposed economies like Australia could be hit hard.
While a global trade war would ultimately be bad news for the global and Australia’s economy overall, there may also be some opportunities amid the uncertainty. For instance, as global trade re-routes, a share of exports under tariffs could be redirected to open economies such as Australia at discounted prices. Australian businesses and consumers could then benefit directly by ‘importing deflation’, and indirectly via a quicker decline in short-term interest rates made in reaction to a slowing global economy. Additionally, some Australian exporters could benefit as relatively heavier US tariffs on imports from other countries create an opportunity to increase market share.
This newsletter was distributed on 21 March 2025. For any questions/comments on this week's newsletter, please contact our authors:
This blog was co-authored by Lester Gunnion, Manager at Deloitte Access Economics
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