As the world digests the potential impact of US President Donald Trump’s latest round of tariffs, the response has been swift and strong.
Prime Minister Anthony Albanese has vowed to use “dispute resolution” powers if necessary, while Opposition Leader Peter Dutton suggested he’d be willing to use defence and security as a bargaining chip in negotiations.
But to understand what these tariffs mean for Australia, it’s important to understand what we sell overseas, and who actually buys it.
Australia’s been on a journey over the past several decades, transforming from a highly trade-protected economy to one that’s now an exporting powerhouse, wide open to imports from all over the world.
Trade is vital for economic growth in Australia, and for decades political parties from both sides of the aisle have been on a unity ticket promoting free trade: eliminating tariffs, banishing import quotas and production subsidies.
Since the late 1980s, Australia has entered into 18 free trade agreements with trading partners from Asia, Europe and the Americas.
In that time, it has advocated for the elimination of trade barriers like tariffs, import quotas and production subsidies at the World Trade Organisation (WTO) and its predecessor the General Agreement on Trade and Tariffs (GATT).
Citing modelling by the Productivity Commission in 2017, Australian Nation University economics professor Shiro Armstrong said Australia’s best course of action would be to remain open to trade in the face of rising tariffs.
“Working with other countries in the region to hold the line, or even to open up in the face of all these markets closing, we can actually minimise the damage and benefit,” he said.
“It’s pretty powerful modelling, that just gives policymakers an idea of, well, going protectionist when every other country is going to be self-harm.”
Our biggest customers are outside the US
While it’s a sizeable market, the US is just one of Australia’s trading partners.
Every country listed among Australia’s top export destinations is a party to a trade agreement, with most of the countries signing a direct bilateral free trade agreement with Australia.
A more ambitious deal is under negotiation with India, and Vietnam and the Philippines are part of the multilateral Regional Comprehensive Economic Partnership Agreement.
China has long maintained its position as Australia’s top export destination, due to the energy and iron ore demand stemming from decades of industrialisation.
Bilateral trade in goods and services with the US has doubled since the start of the Australia-USA Free Trade Agreement (AUSFTA) in 2005, according to the Department of Foreign Affairs and Trade (DFAT).
And last financial year, the US was Australia’s second-largest two-way trading partner, behind China.
But for the US, we’re relatively small fry.
Australia usually maintains a trade deficit with the US, meaning it imports more than it exports. But it still doesn’t buy enough US goods to show up in the US’s top 10 ranked importers.
Under AUSFTA, nearly 99 per cent of US imports enter Australia tariff-free. However some US politicians have argued Australia’s strict biosecurity controls represent a barrier to trade, especially for agricultural goods.
The president singled out Australia’s ban on fresh beef — a biosecurity measure that has been in place since bovine spongiform encephalopathy (BSE) was detected in 2003 — in his global tariffs announcement.
“We imported $3 billion of Australian beef from them just last year alone. They won’t take any of our beef,” Mr Trump said.
What do we sell overseas?
Here are Australia’s top merchandise exports — the goods we sell overseas.
Mining and energy account for the vast majority of the value for Australian exports, with agricultural products making up the rest of the list.
While demand waned last year, China’s economic growth over the last few decades has been fuelled, in part, by the Australian iron ore it uses to fabricate steel.
In the 12 months to May 2024, iron ore accounted for 60 per cent of Australian goods exported to China.
Zooming in on the US
Australia’s most valuable exports to the US are services, and while the flow of that trade can be hemmed or reduced through visa and travel restrictions, they can’t be tariffed in the same way as goods arriving at a US port.
“Usually that’s what we’re thinking about when we think about non-tariff measures or non-tariff barriers,” Mr Armstrong said.
IP charges — the second biggest Australian export to the US — includes things like franchising and licensing fees, royalties and other charges for the use of intellectual property.
Last year saw strong growth in Australian beef exports bound for the US, fuelled by Australia’s favourable market access courtesy of the the US-Australia Free Trade Agreement and weaker Australian dollar, according to Meat and Livestock Australia.
The US was Australia’s most valuable beef export market in 2023/24, a year in which the value of total beef exports hit a record high of $14.68 billion.
Australian beef producers have told the ABC while the 10 per cent tariff is not as bad as some had feared, prices will take a hit.
Two-way street
Australia’s decision to liberalise its economy, strip protection from its industries and open itself to the world for trade has transformed the economy from a protectionist agricultural exporter to a powerhouse in mining exports.
But along the way those same reforms have exposed farmers to price competition all over the world, meaning only the most efficient and competitive farmers have survived until today — a number that continues to shrink.
Australian textile, auto and food manufacturing was also sent overseas, under a model that incentivised the production of raw materials at home, and their processing offshore.
“We don’t make cars anymore. Turns out we’re not very good at making cars, our value add is more in design and specialised parts and marketing,” Mr Armstrong said.
“It’s a harder story for politicians to tell, but we’ve literally become richer because of cheaper imports.
“That’s where more of the benefit comes from in trade.”
