Squiz Shortcuts - Donald Trump's tariffs

Your Shortcut to Donald Trump’s tariffs…

We’re just a couple of weeks into the new term of President Trump’s administration in the United States, and he’s moving quickly to implement his agenda. One of his action items is to impose new tariffs on all goods imported from America's 3 largest trading partners - China, Mexico and Canada. So in this Squiz Shortcut, we’ll get you across:

• what a tariff is

• why Trump is doing it

• and what it could mean for Australia.

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Squiz the Shortcut

Let’s start with the basics - what is a tariff?
A tariff is a tax on foreign goods imported into a country. And prior to the push towards free global markets that took hold in the late 90s, tariffs were widely used as a tool for regulating international trade and for shielding domestic industries from foreign competition.

Got it. Who pays that tax?
Arrangements can vary from nation to nation, so let’s stick with the US… Foreign companies aren't responsible for paying the duties - so by that, I mean the exporter. Instead, the US company doing the importing pays the tariffs on the goods to the federal government. And historically, they have passed on some or all of those costs to consumers. 

Hang on, doesn’t that just hurt American consumers?
Well, you’re assuming that behaviours don’t change… So people who like tariffs (like Trump) argue that the price hike would see many consumers decide to buy US-made products rather than the pricier imports. And they say American companies would see an opportunity and start making those goods in the US.

Are tariffs still used in some countries?
Yep, including Australia. But for the last 30 years, developed economies have largely been in agreement that removing trade barriers and encouraging free trade is an important way to grow economies, create more jobs and encourage international investment. So when you hear politicians talking about Free Trade Agreements, that’s what it’s about. 

Which countries does Australia have Free Trade Agreements with?
Australia has had a free trade agreement in place with our cuzzie bros in New Zealand since the early 1980s, and since the 2000s we’ve inked deals with China, the US, and Japan. Another relatively recent one was the Australia-India Economic Cooperation and Trade Agreement, which came in at the end of 2022. These are huge economies, and they’re deals that can have real benefits for our exporters. 

What’s Donald Trump proposing?
During last year’s presidential election campaign, Trump talked about using tariffs to further his America First agenda. He promised to issue universal tariffs hitting all goods imported into the US from overseas, but he very quickly got specific about plans for China, Canada and Mexico. Over the weekend, he signed 3 executive orders placing tariffs of 25% on all goods from Canada and Mexico, and a 10% tariff on Canadian oil exports and Chinese goods. 

Are those countries likely to retaliate?
They say they will, but here’s the kicker - Trump says if the countries impose their own tariffs on American exports, White House officials will increase those rates. 

How much does America import from these 3 countries?
The US imported 1.2 trillion American bucks worth of goods from Canada, Mexico and China combined in 2023. Those 3 nations are America’s biggest trade partners - and we mentioned earlier that this falls into Trump’s America First agenda - but it’s more than that. 

What else is it about?
Trump says it’s retaliatory action for the immigrants and illegal drugs coming into the US. And while both Mexico and Canada say they’re willing to work with him and his team on those things, there was nothing in place to head it off. But discussions are now taking place…

How has China reacted to Trump’s plans?
Reports say Chinese businesses have been readying themselves for Trump 2.0. For now, Trump has ordered a review of US-China trade - which buys China’s leaders some time. In the meantime, reports say some global businesses have tried to future-proof themselves by leaving China… Nike, Adidas and Puma are a few that have already relocated to Vietnam.

When will the tariffs come into effect?
They’re meant to take effect imminently but negotiations are afoot and there’s still a lot to be fine-tuned.

What will it mean for the Australian economy?
Our economy relies on a strong American and Chinese economy - so anything that threatens that is a problem. Needless to say, a full-blown US-China trade war would not be good news at all. In the meantime, reports say our Trade Minister Don Farrell is urgently seeking talks with his US counterpart to firm up our own trade agreements, so watch this space...

Onto our Recommendations

Listening: This episode of the ABC’s If You’re Listening podcast… it’s called Will Trump's tariffs make America expensive again? As it says on the box, it gets into Trump’s new tariffs – but it also gives some extra context by getting into our recent history with tariffs here in Australia. 

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