We’re about to be hit by Trump’s tariffs. Here’s what we know about ‘liberation day’

A tariff is a tax or duty collected by the government on goods or services being imported into the country. Tariffs are paid by the business doing the importing, and are often passed onto domestic customers. This means tariffs effectively raise the price of overseas goods for domestic consumers.

Tariffs are often used as a way to protect domestic producers by encouraging consumers to buy domestic goods over foreign-made goods, which may otherwise be cheaper or of better value.

They can also be used as a punishment or “stick” to negotiate with other countries that are likely to see demand for their exports fall when hit with a tariff, or as a way to encourage more domestic production of a good or service in the interests of national security.

What is Trump threatening and why?

In February, Trump imposed sweeping 25 per cent tariffs on all steel and aluminium imported into the US. He said it would protect America’s critical steel and aluminium industries from “excess” production overseas, with the metals increasingly being imported to the US and hurting American steel and aluminium producers.

On Thursday, Trump will reveal a further round of tariffs, with Australian exports – including $7 billion in farm produce such as beef – tipped to be hit with tariffs of 10 per cent or more. It comes after the Australian government pushed back against demands from Trump to overhaul pharmaceutical subsidies and weaken biosecurity rules, which he argues disadvantage American producers.

For Trump, tariffs are also seen as a money-making opportunity. He believes slapping tariffs on imports will make the country richer – although this is questionable given tariffs are largely paid by domestic consumers, tend to worsen productivity and slow down economic activity.

How will tariffs affect Australia?

The effect of US tariffs on Australian goods is unlikely to be significant. This is because most Australian exports do not get sent to the US. In 2023-24, about $38 billion of Australian exports were sold to the US, compared to $210 billion to China, $81 billion to Japan and $42 billion to South Korea.

Australia’s biggest exports are resources such as iron ore, coal and liquefied natural gas (LNG), which in 2023, comprised nearly half of the country’s total exports at a total value of more than $330 billion. Very few of these resources were sent to the US, with most being shipped to countries such as China and Japan.

That means the biggest hit will come from any flow-on effects of tariffs on our largest trading partners, who are more exposed to the US. Tariffs on China, for example, could slow its economy down, dramatically reducing demand for Australia’s major exports such as iron ore, and hitting the Australian economy.

Agricultural products – mainly meat – comprise the biggest part of Australian exports to the US, but Westpac senior economist Mantas Vanagas says these products could probably be sold to other countries. Australian farmers exported $7.1 billion in agricultural produce to the US in 2023-24.

There are also costs which are more difficult to quantify, such as uncertainty around the details and the effects of the tariffs, which can discourage businesses from making investment decisions.

Should Australia retaliate with its own tariffs?

It’s widely accepted by economists that tariffs do more harm than good. That’s because trade is a crucial way for countries to lift living standards, allowing them to make more of what they are good at in exchange for things other countries can make at a lower cost.

For example, making cars or iPhones in Australia would be far more costly than it is in China, meaning it makes more sense for Australia to import these goods with money earned from activities such as mining and farming, areas where we have a relative advantage.

Tariffs make goods and services more expensive – both for domestic consumers and businesses importing them. Retaliating with more tariffs can lead to a tit-for-tat situation where countries keep raising or adding tariffs on each other, worsening the barriers to trade and making imports more expensive for their consumers.

Prime Minister Anthony Albanese and Opposition Leader Peter Dutton have both said Australia will not impose retaliatory tariffs, saying tariffs and escalating trade tensions are a form of “economic self-harm” for the US.

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