# Trade tariffs are the new normal – and that’s unlikely to be positive for Australia

Sally Auld

US tariff policy has dominated headlines in recent weeks. In many respects, this shouldn’t come as a surprise – President Trump has been clear in his belief in tariffs as an effective policy tool. Indeed, the new US administration views tariffs as not only a means of raising tax revenue but also as a negotiating tool and a lever to ameliorate so-called trade imbalances. So far, we have seen both the threat of tariffs and the use of tariffs to achieve all these objectives.

Despite all the headlines, Australia hasn’t really been subject to large changes in tariffs on its exports to the US. The US has, however, announced a 25% tariff on all steel and aluminium imports. If Australia is not successful in obtaining an exemption, Australian steel and aluminium exports to the US will be subject to new tariffs from 12 March. At an aggregate level, this won’t make much difference to Australia’s trade balance because the value of our exports of steel and aluminium to the US is only a very small proportion of our total exports. This is not to ignore the fact that, at a firm or industry level, a 25% tariff is significant.

Beyond the tariff on steel and aluminium, Australia is unlikely to suffer a large direct impact from changes in US tariff policy. For a start, Australia runs a trade deficit with the US; that is, the value of our exports to the US is lower than the value of our imports from the US. In contrast to some countries who run large trade surpluses with the US, such as Canada, Mexico, Vietnam and China, this means that we are unlikely to be in the firing line for large tariffs. And  by the Reserve Bank of Australia shows that even if the US levied an additional 10% tariff on all Australian exports to the US, the direct impact would be about 0.1% of GDP; that is, very minimal.

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One recent example is the announcement of a 25% tariff on all steel and aluminium imports. If Australia is not successful in obtaining an exemption, Australian steel and aluminium exports to the US will be subject to new tariffs from 12 March.

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