Squiz Shortcuts - Trump's Liberation Day tariffs

Your Shortcut to… Trump’s Liberation Day tariffs

US President Donald Trump has revealed his plan to ‘Make America Wealthy Again’ by imposing tariffs on almost all imports to the US. There's a lot to make sense of, so in this Squiz Shortcut we'll look at:

• how the world has reacted

• what the markets are doing

• and what the tariffs mean for us in Australia

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Let’s rewind for a second - what is a tariff?
Besides being an early contender for 2025’s Word of the Year, a tariff is a tax on imports. Some governments collect tariffs on products being imported into their countries. The reasoning is that it makes imported goods more expensive to buy, which can help local businesses compete with foreign products. 

Is that why Trump has imposed tariffs?
It sure is. He’s trying to encourage Americans to buy domestically to create industry and jobs, and to keep the money generated from that within the US economy. He says his plan is an “economic revolution” for America and he believes in it so much that he called the day of the announcement (2 April) “Liberation Day”. 

Why “Liberation Day”?
He says he’s freeing America from being “ripped-off” by its trading partners because it currently imports more than it exports, to the tune of a US$1.4 trillion dollar trade deficit.

How is he going to do that?
By imposing a 10% minimum tariff across the board on most imports into the US. That’s the base rate and around 60 countries will have higher rates. 

Which countries have copped it the worst?
The highest tariffs will be on goods from Cambodia at 49%, Vietnam at 46%, and China at 34% - but Chinese goods already have existing tariffs in place of 20%, so its rate goes up to 54%. 

What about Australia?
Even though we import more from the US than we export to it, our goods will be hit with the base tariff of 10%.

How has Trump calculated the different tariffs?
He’s arrived at the figures by working out “tariffs” that he says countries have been charging America. To do that, he’s taken their trade balance with the US, turned it into a percentage, divided it in half, and rounded it up. If you feel a headache coming on, we’ve included an ABC article in our recommendations so you can delve a little deeper into the formula… 

What’s the fallout been?
Well, for one thing, some countries have retaliated with their own tariffs. For example, China has imposed import taxes of 34% on US goods, describing Trump's actions as "bullying" and a violation of international trade rules. 

If a lot of countries do that, what will it lead to?
Economists say it could bring about an international trade war, and that would be a problem because it could slow economic growth and damage the global economy. It’s for that reason, the world’s stock markets have gone into panic mode.

What’s happening there?
The Friday after the announcement, US$5 trillion in value was wiped off the stock market for S&P 500 companies - they’re the 500 leading companies on the US stock exchange. That’s the most since the fall of 2020 when Covid-19 was declared a pandemic, leading to shutdowns and big disruptions to the global supply chain. 

Was the carnage confined to the US?
Nope. The FTSE - which tracks the UK’s 100 leading companies - dropped by nearly 5%, as did markets in Asia, France and Germany. 

What’s Trump saying about the falls?
Trump has dismissed the freefalls - he says the US’s labour market is strong. He’s told Americans to “hang tough” and to be “courageous and patient” while US manufacturing and supply catches up with demand. In the meantime, if they want to buy imported goods, Americans be paying a lot more for them.

Was our stock market affected?
Yep. Nearly $60 billion was wiped from the value of the ASX 200 - which tracks the 200 biggest Aussie companies on the market - last week after the announcement. And things didn’t improve yesterday when it dropped by a further 4.2%. 

What will it mean for our relationship with the US?
Political experts say the tariffs have really opened our eyes to where we stand with the US. It’s no secret that we’ve long considered America to be one of our closest allies and trading partners, and we have a Free Trade Agreement in place with them - like a lot of countries. 

What does that mean?
Until Trump overrode it last week, it meant that the bulk of our goods exported there were free of tariffs - and vice versa. A free trade agreement basically acts as an incentive for trade between countries, but Trump has put the brakes on all of that, and we haven’t received any special treatment, even given our historical ties. 

Do the tariffs apply to all of our products?
There are around 1,000 products that won’t be taxed just yet. Some products on that list that benefit Australia are pharmaceuticals, semiconductors, gold, copper and other critical minerals that aren’t available in the US, and also oil and gas.

Are those sectors still in Trump’s sights?
Very possibly. The big US pharmaceutical companies have been putting pressure on Trump to impose tariffs on Aussie pharma imports because they see our low-priced pharmaceuticals as a trade barrier. 

What’s our biggest export to the US?
Beef - last year we sent $3.3 billion worth of beef to the US, and that’s not exempt. In fact, Trump made a point of singling our beef out in his Liberation Day speech, saying that “Australians are wonderful people … but they ban American beef.” 

Is that true?
Not strictly, no. We put restrictions in place in 2003 after the US had an outbreak of mad cow disease, but the Department of Agriculture says the US now has access to the Aussie market, if it proves the beef it’s selling comes from cattle born, raised and slaughtered in the US. But there is still a risk of the disease in cattle from Mexico and Canada, and we’ve got protections in place because of that. 

Got it. Anything else I need to know about the tariffs placed on Aussie goods?
Our steel and aluminium products are still subject to a separate 25% tariff that was imposed last month, and the 10% doesn’t apply on top of that.

How have our leaders reacted?
PM Anthony Albanese says we won’t be introducing retaliatory tariffs of our own like China has. He said that while the tariffs were “unwarranted” and “not the act of a friend”, we won’t be entering into what he called “a race to the bottom that leads to higher prices and slower growth”.  While Coalition leader Peter Dutton said he wasn’t afraid to take Trump on, the PM said “aggro” wasn’t called for, and the government would continue with diplomatic approaches to get the tariffs removed.

Are we inclined to “buy” favour with Trump by bending on some of the policies the US doesn’t like, for example, our biosecurity laws, the PBS or our news bargaining code (which will force big tech companies to pay for news content)?
Both Albanese and Dutton say they won’t budge on those issues in order to get tariff exemptions, so doesn’t look like it - and given their united front, it’s also not likely to become a major election issue.

Is the government offering any help or strategies for affected industries?
Yes; the federal government has announced some financial help in the form of grants and loans for industries to find new markets. 

What new markets are open to us?
Foreign Minister Penny Wong said the government’s efforts to repair relations with China could pay off as we look for new trading partners. She said SE Asia and India were other potential markets, while Trade Minister Don Farrell said he’s renewing talks with Europe. And as it all shakes out, some reports are pointing to a couple of areas where Aussies could actually see some benefits…

What are they?
Economists are predicting that we could see cheaper clothes, cars, and appliances here as Asian suppliers pivot from the US. And we could also see interest rate cuts. The thinking is that, with a slowing economy, the RBA may need to stimulate economic growth by cutting rates. 

Hang on, might that lead to…?
Cost of living relief? Yes… and also possibly another round of that tricky dance we do with inflation…

Onto our Recommendations

Reading: This ABC article that explains the maths behind Trump’s tariffs formula

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