What do Trump Tariffs mean for Australian Businesses?

After months of speculation, the Trump administration has delivered on its election promises by imposing tariffs on goods of Canadian, Mexican and Chinese origin and on steel and aluminium exported to the United States (US). 

The Trump administration’s proposed tariffs on those imports aim to boost US federal revenues, reduce the trade deficit, and protect domestic industries. However, they have triggered retaliatory actions, potentially disrupting global trade and supply chains. Australian businesses will face challenges and opportunities and must take action to assess supply chain impacts and explore cost mitigation strategies in order to navigate this evolving trade landscape.

Aligned with President Trump’s recently signed ‘America First Trade Policy’ memorandum, the measures broadly seek to prevent fentanyl from illegally entering the US, encourage re-shoring of industries back to the US, reduce the US’ dependence on global supply chains, and counter illicit transfer of technologies and intellectual property.

Clearly the most significant and immediate outcome of the tariffs will be to raise US Federal revenues, reduce the US trade deficit, and seek to protect US industries from foreign competition.

However, these measures are the tip of the iceberg, with President Trump already posturing for further protectionist tariffs to be implemented, and retaliatory tariffs and other trade measures already threatened by Canada and Mexico and implemented by China. Further, these measures are sure to have a ripple effect on global trade and cause further disruption to international supply chains, which have only just begun to settle into a ‘new normal’ after the COVID pandemic.

What do we know so far…

Tariffs on China

• An additional 10% tariff has been imposed on all Chinese goods entering the US, with no exceptions. 
• This is in addition to the existing additional tariffs on Chinese products enacted under the first Trump presidency and that have persisted throughout the Biden administration. 
• Further, these tariffs are in addition to the general duty rate and other fees, taxes, levies or charges normally applicable when importing goods into the US.
• China has responded, introducing tariffs across a number of commodities, including a 15% tariff on US coal and liquified natural gas, a 10% tariff on crude oil, agricultural machinery and large-engine cars, as well as imposing export controls on rare earth minerals and metals. China has also filed a case against the US tariff measures under the World Trade Organisation’s dispute settlement mechanism.

Tariffs on Canada

• An additional 25% tariff will be imposed on almost all Canadian goods entering the US. The only exception to the 25% tariff is energy resources (such as crude oil, natural gas, lease condensates, natural gas liquids, refined petroleum products, uranium, coal, biofuels, and critical minerals), which instead will face a 10% tariff. 
• In response to the US measures, Canada has announced retaliatory tariffs of 25% on US goods entering Canada. This includes initial targeted measures on an estimated CA$30 billion worth of imported products, and a planned second round of measures targeting an additional CA$125bn worth of imports.
• The US and Canada have negotiated a 30-day delay to the implementation of these tariffs. The notional date of implementation is now 12:01am EST on 4 March 2025, unless the matter can be negotiated or settled prior to this date.

Tariffs on Mexico

• An additional 25% tariff will be imposed on all Mexican goods entering the US, with no exceptions. 
• In response, Mexico announced its intent to apply retaliatory measures against US imports but has not yet released specific details of these. 
• Mexico has also negotiated a 30-day delay to the implementation of these tariffs, with the notional date of implementation now 12:01am EST on 4 March 2025, unless the matter can be negotiated or settled prior to this date.

Tariffs on steel and aluminium – from all countries

• A 25% tariff will be imposed on all imports of steel and aluminium, with no exceptions.
• This builds on the Section 232 tariffs imposed under the first Trump presidency and raises the existing tariff on aluminium from 10% to 25%, broadens the scope of impacted commodities and removes exceptions previously afforded to various countries, including Australia. 
• The notional date of implementation of these measures is 12:01am EST on 12 March 2025.

Non-availability of de minimis exemption

Importantly, where goods from Canada, Mexico or China or imports of steel and aluminium are subject to any of the additional tariffs, they will no longer be eligible for duty relief under the US’ ‘de minimis’ or ‘low value’ exemption. 

As a result, where goods valued under US$800 may have previously been exempt from duty and other levies, they will now be subject to the additional tariffs and any other duties, taxes or fees payable on import to the US. However, this has now been paused while the US develops systems that can manage these measures. This measure will particularly impact e-commerce and on-line businesses with business-to-consumer consignments destined to the US.

Additionally, the use of duty drawbacks (a refund of the import customs duty paid where goods are subsequently exported from the US) will not be available on any of the additional tariffs paid on import.

What can we expect next…

President Trump has already indicated a general intention to impose ‘across the board’ additional tariffs of between 10% and 20% on all goods from all other countries. Further, the Trump Administration has suggested that the US will impose further trade protectionist measures on imports impacting certain sensitive sector and trade exposed industries, such as computer chips, pharmaceuticals, copper, oil and gas, etc.

Imports into the US from the European Union (EU) are likely to be affected with President Trump already posturing that tariffs on imports from the EU may be announced ‘pretty soon’. If this were to occur it would be fair to say that the EU would respond quickly and firmly, as they have suggested they will do in respect to the steel and aluminium measures.

What does this all mean for Australian businesses…

So where does this leave Australia? Our strategic relationship with the US is grounded in our two-decade old Australia-United States Free Trade Agreement (AUSFTA) and more recently the AUKUS defence strategic partnership which should serve us well as a key trading ally of the US. However, we should not be complacent as Canada and Mexico equally had a long-standing Free Trade Agreement with the US but that did not exempt them from significant protectionist tariffs.

Whilst no specific threat of tariffs specifically targeted at Australia has been suggested by the Trump Administration to date, the Office of the United States Trade Representative recently reported that it regarded several of Australia’s barriers to US trade as high priority barriers and potentially unfair trade practices. Countering ‘unfair trade practices’ against the US is a key agenda item under the ‘America First Trade Policy’. This is a warning sign that Australia may not be immune from the emerging global trade wars.

Whilst the most recent proclamation imposing 25% tariffs on all imports of steel and aluminium was not specific to Australia, it will naturally impact our steel and aluminium sectors. However, there appears to be confidence by the Australian Government that we should be able to secure an exemption or at least a quota restriction from these measures given we achieved the same in President Trump’s first term.

The full impact of what these global measures will mean to Australian businesses will not manifest for some time, however there are some clear impacts and opportunities that we believe Australian businesses (depending on the nature of their business operations and activity undertaken) will likely encounter where they trade goods globally. These include:

• Cost of operations in the US to potentially increase – the supply chain costs for Australian businesses with operations in the US may rise, particularly affecting those in the manufacturing and retail sectors. Many of these businesses depend on supply chains linked to nearby markets such as Canada and Mexico or are integrated with value chains that rely on Chinese goods for intermediate or finished products, resulting in a significant cost in procurement.
• Indirect impact through global supply chains – many Australian companies are part of global supply chains that involve the US and China. The new and proposed tariffs may potentially disrupt these supply chains, leading to increased costs and/or supply delays.
• eCommerce shipments direct to US customers may slow and costs may increase – with many Australian retailers selling goods, of Chinese origin direct to US customers under the ‘de minimis’ arrangements (i.e. less than US$800), once the measure is fully implemented, businesses will face increased costs in the form of tariffs and administrative/ border clearance costs. 
• Compliance burden and cost to increase – the introduction of additional tariffs will lead to increased scrutiny and compliance costs, as businesses must prove the ‘true origin’ of goods to US regulators as they seek to ensure protectionist tariffs have not been circumvented through transshipment or altering supply chains.
• Freight in a potential state of flux (again) – as the US tariffs and retaliatory tariffs around the world start to have effect, there will be a reflex on global shipping. This would result in shipping volume fluctuations, trade route adjustments and capacity reallocation as tariffs potentially alter the flow and volume of goods between countries and making shipping space/availability and costs volatile. Given Australia’s geographical isolation from most of our trading partners, the volatility in cost and reliability of freight could become significant to supply chain cost and performance.
• Currency fluctuations – global trade tensions can lead to fluctuations in currency markets, affecting Australian businesses who buy and sell in international markets.
• Australian-made an attractive alternative for US consumers – with Australia not broadly affected by the new US tariffs, US consumers might favour sourcing Australian made products since they can still benefit from the AUSFTA to reduce potential customs duty costs. This could be an opportune moment for Australian businesses to enter or expand their presence in the US market!
• Australia could become a ‘dumping ground’ – as the US tariff policy raises international trade costs and decreases product demand in the US market, foreign businesses might seek alternative markets, such as Australia, to ‘dump’ excess stock. This influx of foreign products could lead to increased local competition and create downwards pressure on domestic prices. Consequently, there may be an uptick in potential anti-dumping measures to safeguard local industries.

What should you be doing now…

Companies should take immediate action to fully assess the impact of President Trump’s tariff policy and corresponding global responses on their global supply chains and understand what mitigation tactics and strategies could be implemented. These include:

• Assess impact – evaluate the effects and determine the degree of changes needed by analysing the impact of tariff increases on offshore purchases and sales. This will help to understand how your business model is affected and whether structural or value chain changes, such as altering manufacturing models or diversifying sourcing, are necessary. Additionally, consider the related tax implications.
• Explore tactical customs strategies to combat rising costs – investigate customs duty management tactics to address rising duty costs. Analyse and understand your customs duty profile throughout your entire supply chain and identify potential measures to mitigate or defer duty liabilities, such as assessing tariff classifications used to potentially access lower duty rates, utilising available free trade agreements and free trade zones (where available), utilising duty drawbacks (where available), and exploring customs valuation strategies such as first sale for export or price unbundling, etc.
• Review pricing and cost management – assess overseas supplier and/or export customer contracts to ascertain whether you have to absorb increased tariff costs (where applicable) or whether you can pass them on (or a combination of both). Where possible, renegotiate contracts, pricing and Incoterms to shift or share any increased costs.
• Consider freight contracting strategy – as global shipping demands shift to meet shifting trade flows, consider which trade lanes may merit forward versus spot contracting arrangements.
• Manage currency fluctuations – consider using financial instruments to hedge against currency fluctuations and other risks associated with the tariffs.
• Monitor latest developments and geopolitical shifts – trade and tariff measures can move very quickly and as a result are often missed. Monitor geopolitical developments and potential retaliatory actions and use this information to adapt and adjust strategies to minimise the risks associated with increased costs from rising tariffs in markets you operate.
• Manage complexity through technology – consider adopting digital tools and systems to enhance supply chain visibility, efficiency and better manage cross border duties and taxes.
• Engage in policy advocacy – where you are adversely trade affected by the US tariffs or retaliatory measures, raise with Government to advocate for policies that support Australian businesses and minimise adverse impacts from foreign tariffs.

Now is the time for Australian businesses to assess supply chain impacts and take actions as necessary to navigate this evolving global trade landscape.

At PwC, we leverage our extensive expertise and experience in the customs and trade field to assist businesses in navigating the complexities of the evolving trade environment. Our dedicated team of trade professionals is adept at providing strategic insights and customised solutions to help companies assess and solve their important problems.