What do businesses need to know about US tariffs globally and in Australia?

Most products originating in Australia are now subjected to this 10% tariff when imported into the US. The most affected sectors are related to steel, aluminium, and European Union, Japanese and Chinese origin goods.

The scene with the US president holding up a big printed chart of "reciprocal tariffs" was all around the media at the beginning of April, this year. From 5 April 2025, the US has imposed a baseline tariff on a long list of countries, including Australia. Most goods originating in Australia are now subjected to a 10% tariff on imports into the US.

The US has exempted some products from the new tariffs, as some goods had already been subjected to 25% tariffs earlier this year, as the 25% tariff will be imposed on all imports of steel and aluminium from all countries, with no exceptions.

Professor of Economics and Director of the Australian Institute for Business and Economics at the University of Queensland (UQ), Flavio Menezes, points out that while the U.S. economy may experience short-term growth due to the tariffs, it would come at the cost of higher inflation, as tariffs raise the prices of imported products. “Even if there were temporary gains, they would not be sustainable”, says the economist.

How do the tariffs impact businesses?

First things first, a tariff is a tax imposed by a country on imported goods. This amount is added to the total cost of the product, increasing the final price of imports compared to domestic products.

Australia exported 223,000 tonnes of steel and 83,000 tonnes of aluminium, opening a new window to the US last year. If the price increase is due to the imposition of new tariffs, this will lead to reduced demand for Australian products in the US. Tariffs applied to Australian partners such as China, Japan and the EU may also indirectly impact competition for Australian products in other markets, reducing exports.

The negative effects of U.S. tariffs would ripple through the global economy, initially impacting major trading partners like China, Canada, and Mexico, before spreading to Australia and others through secondary effects. “For example, if a U.S.-China trade war weakens the Chinese economy, China will reduce its imports from Australia, amplifying the disruption”, explains Professor Flavio.

Australia, which was grounded in the last two-decade agreement Australia-United States Free Trade Agreement (AUSFTA), is now under the additional 10% tariff. According to The Guardian Australia KPMG chief economist, Brendan Rynne estimates that the average tax rate on US imports is set to soar by more than 18%. He also says that the world economy as a result would shrink by about 0.4%. As Australia depends on trade economy growth, he estimates the new tariffs will deliver a $27bn blow to Australia’s economy or as much as 1% of GDP.

Professor Menezes remembers that Australia has low direct exposure to the U.S., with the U.S. accounting for less than 5% of our exports.

How should Australian companies react to this scenario?

Mr Menezes advises that Australian businesses mitigate the impact of President Trump’s tariff wars by spreading their risks on different dimensions. 

Some short-term strategies can be applied to minimize the impact of the new global tariff scenario on national business.

Professor Maggie Dong, Head of the School of Marketing at UNSW Business School, says that Australia faces a growing dilemma: while its economy relies heavily on Asian markets like China, it also feels pressure to align politically with the US.

Based on the opinions of the specialists, these would be some steps to take to minimize the trading global war impact on business in Australia.

• Diversification: Broaden both markets and supply chains: look beyond traditional trading partners for customers and inputs. “So that a single border dispute cannot derail production or sales”, says Prof Menezes.
• Flexible contracts: This type of contract allows companies to adjust their terms and prices more quickly in response to changing external factors, while companies explore alternative markets or reconfigure their business models to reduce dependence on the U.S. market. “This kind of flexible contract usually includes a clause allowing for quick renegotiation in the event of some unpredicted situations, like tariffs or supply shocks,” says Prof. Dong.
• Nearshore and regionalization: Another strategy is to move production closer to home. Nearshoring is a form of outsourcing in which an organization sources its products from a neighbouring country. Again, skilled international workers can help bridge the gap with other countries and also bring in external collaboration.
• Financial coverage: Hedge against swings in exchange rates already amplified by President Trump’s haphazard approach to tariffs.
• Investing in innovation: Improving operational efficiency can help companies remain competitive despite higher costs due to tariffs. For that, skilled workers are key to improving the process.
• Strategic alliances: “Resilience also comes from collective strength. Within an industry or across complementary sectors can increase bargaining power and create shared safety nets.” Says the Director of the Australian Institute for Business and Economics at the University of Queensland (UQ), Flavio Menezes.

“A significant indirect impact will be on our main trade partner, China, with whom we have heavily concentrated exports in iron ore, coal, and gas, as China is a major buyer. However, the risk to our commodity exports is somewhat mitigated by the fact that commodities can be easier redirected to other markets compared to other types of exports”, Flavio Menezes.

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