Understanding Tariffs and Their Impact on Global Trade
- Amanda Wren
- Mar 24
- 4 min read
Between January 30 and February 2, 2025, global Google searches for the word “tariffs” surged by an astonishing 900%, a clear sign of rising public interest in this critical aspect of international trade. As tariffs and trade wars dominate the headlines, it's important to understand exactly what tariffs are, how they impact the global economy, and who bears the costs
What Are Tariffs, and Who Pays for Them?
At their core, tariffs are taxes placed on imported goods, raising their prices and reducing the flow of those goods into a country. The purpose of tariffs is often to protect domestic industries by making foreign products more expensive, thereby reducing competition. This can have a significant impact on both international trade and the cost of goods within the country imposing the tariffs.
For example, during his first term, President Trump imposed a 25% global tariff on steel and a 10% tariff on aluminium. In the US, this led to a reported 2.4% increase in the price of aluminium and a 1.6% increase in steel prices. Contrary to common belief, the cost of tariffs is not borne by foreign suppliers directly; instead, it's usually passed on to domestic consumers in the form of higher prices. While tariffs are designed to reduce the competitiveness of foreign products, they can lead to higher prices for consumers, particularly for goods that are commonly used.
In countries like the US, where trade represents around 24% of GDP, the immediate negative impact of tariffs might not be as severe as it would be for other nations more reliant on trade. For instance, trade accounts for 67% of Canada’s GDP, making its economy much more susceptible to tariff-related disruptions.
The US and Its Ongoing Trade Tariffs
US trade policy, particularly under President Trump, has been marked by a heavy reliance on tariffs. During his 2024 election campaign, Trump declared that the US could become "rich with the proper use of tariffs." His administration's first significant moves were to impose tariffs on key trading partners like Canada, Mexico, and China.
Canada: The US imposed a 25% tariff on Canadian goods, excluding energy resources (which faced a reduced tariff of 10%). Canada retaliated with its own 25% tariffs on US products, particularly agricultural and household goods. This tit-for-tat response is typical in trade disputes, with both countries using tariffs as leverage to protect their domestic industries.
Mexico: A similar 25% tariff was imposed on imports from Mexico, which led to a reciprocal tariff from Mexico on US goods.
China: The US imposed a 20% tariff on imports from China to address its growing trade deficit. In response, China levied tariffs on a wide range of US products, including agricultural items like chicken, wheat, and cotton.
In addition to these bilateral tariffs, trade tensions between the US and China have led to various disputes at the World Trade Organization (WTO), highlighting the growing complexities of global trade relations.
Industry-Specific Tariffs and Investigations
The US government continues to examine potential security threats related to imports of certain goods. For instance:
Steel Imports: Starting in March 2025, the US will resume its original 25% tariff on steel imports, following the expiration of temporary agreements with several countries, including Australia.
Copper Imports: No immediate tariffs have been imposed, but an investigation into the national security risks of copper imports has been initiated.
Timber and Lumber Products: An investigation into the security risks posed by timber imports is ongoing, although no tariffs have yet been imposed.
Tech Giants: US President Trump has also expressed concerns over digital service taxes (DST) imposed on American tech companies and threatened to respond with tariffs and other measures.
Australia and US Tariffs: What’s at Stake?
Australia, a major trading partner of the US, is unlikely to face widespread tariffs, especially given that it enjoys a significant trade surplus with the US. However, certain industries—such as steel and aluminium—could be affected by product-specific tariffs. Australia’s largest exports to the US include financial services, gold, and agricultural products, while the US exports to Australia are primarily in the form of financial services, travel services, and telecommunications.
Despite the relatively stable trade relationship between Australia and the US, Australian businesses may still feel the ripple effects of US tariffs, especially if the broader global trade environment becomes more volatile. For example, if China—Australia’s largest trading partner—experiences reduced demand due to a trade war, Australia’s economy could slow as well.
The Broader Impact of Trade Wars on Australia
For Australian businesses, uncertainty surrounding global trade is a significant concern. Trade disruptions and the volatility caused by tariffs can slow the economy, disrupt supply chains, and increase the costs of goods. In particular, businesses that rely on Chinese-manufactured products or goods passing through other tariff-affected countries may experience higher costs and supply chain delays.
Moreover, if the US were to reduce its export markets due to its own trade battles, other nations might look to dump their products into global markets to offset potential losses. This could further destabilize the global economy and create additional challenges for Australian exporters.
Foreign Property Purchase Ban in Australia
As of April 1, 2025, the Australian government will implement a temporary ban on foreign investors purchasing established homes. This ban is intended to curb foreign “land banking”—the practice of purchasing property for investment purposes without developing or utilizing it. The new measure will affect foreign investors, including temporary residents and foreign-owned companies, who will only be allowed to acquire property under specific exemptions.
Additionally, foreign investors purchasing vacant land will be required to meet development conditions, ensuring that the land is used productively within a reasonable timeframe. This move is part of broader efforts to address housing affordability and improve land use in Australia.
As the global economy navigates the complexities of trade wars, tariffs, and shifting policies, businesses and consumers alike must stay informed about the evolving landscape. For Australia, the indirect impact of US trade policies, particularly through its relationship with China, presents a range of risks and opportunities. The trade uncertainties could have significant implications for supply chains, costs, and overall economic growth. Similarly, the government’s new measures to limit foreign property purchases reflect broader concerns over housing affordability and the role of foreign investment in Australia’s real estate market.
By staying on top of these developments, Australian businesses can better prepare for the challenges and opportunities that lie ahead in an increasingly interconnected global economy.
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