Where are Trump's tariffs up to?

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Where are Trump’s tariffs up to?

The Trump administration’s tariff regime has been back in the news after the US lifted rates last week for a bunch of countries around the world, including Australia. This latest move is over modern slavery laws - and if you’re scratching your head about that, you’re not alone. So in this Squiz Shortcut, we’ll get you across:

• The latest with US tariffs

• What modern slavery has got to do with it

• And what happens next

🙋🏻‍♀️ This newsletter was written by Andrew Williams and Larissa Huntington

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Squiz the Shortcut

Wind it back a bit, what are tariffs again?
We heard the term a lot last year in the news, but to remind you, a tariff is a tax on imported goods. Back in April last year, US President Donald Trump announced that the US was introducing what he called “reciprocal” tariffs on all countries around the world. He called it ‘Liberation Day’…

What was the rate imposed on Australia?
It was 10%... Imports usually happen in bulk, so it means that when a company in the US buys a product from an Australian company, they’re up for the cost of the product plus a 10% import tax which goes to the US Government. 

Why do governments charge tariffs?
They do it for a couple of reasons. For one, it raises revenue without directly taxing their own citizens, and it can help out domestic industries by making customers less likely to buy from international companies (which tend to be more expensive due to the tariffs)…

What was President Trump’s argument for introducing them?
He reckoned that the US was running a trade deficit with many of those countries, meaning the US was buying more of their products than they were buying from the US, and he wanted to address that imbalance. But he also commonly uses tariffs as a negotiating tool…

Just explain that a bit more…
Well, if he wants a certain country to do something for him, he’s been known to threaten their government with tariffs in the hope they’ll roll over. No country wants a tariff on its goods because it makes them less attractive to buy. But up until recently, there wasn’t much anyone could do about them - that was, until the US Supreme Court stepped in… 

What happened there?
In February, the court overruled the tariffs, saying that the legal avenue Trump used to impose them - called the International Emergency Economic Powers Act - did not in fact give him the power to introduce them. 

Wait, what…?
Yep… The ruling was a bit surprising, not least because the Supreme Court is generally seen to be aligned with Trump politically, having more conservative justices on the 9-person bench than liberal ones. But the upshot of the decision is that only Congress, not the President, has the power to bring in tariffs… 

Got it… So where does that leave things?
It meant that suddenly, all the money that the government had collected  from the tariffs had to be paid back, with interest. That was a total of well over A$200 billion - a pretty major chunk of change… 

Has everyone got their money back?
Not quite… The refunds went to the importers, not the original businesses that sold the products. So there are now a stack more legal cases happening where businesses are suing to get their money back. Australian swimwear brand Nashie is an example of a company that recently received a 6 figure refund from the original 10% tariff - but it was then replaced by a new one.

Tell me about the new tariff…
Before that, it’s worth noting that those refunds didn’t affect all of the tariffs Trump brought in. But in any case, the 10% tariff was due to expire - under the rules, the US government could only impose it for 150 days. But instead of getting rid of it, as the Australian government had hoped, the Trump administration instead raised it to 12.5%. And with an entirely different justification…

What’s the new justification?
Not everyone copped the new elevated rate - some are still on 10%... But under US law, a section of its 1974 Trade Act allows them to impose tariffs if they deem a foreign government to be carrying out discriminatory or poor trade practices. In this case, the Trump administration has specifically called out the issues of forced labour, or modern slavery - and Australia is included… 

What do you mean by modern slavery?
It’s a term for when someone controls someone else for economic gain. Slavery in terms of owning someone outright is illegal in every country in the world, but modern slavery is where they are owned or exploited in a similar but less direct way, say through forced labor, exploitation, or forced marriage… But here we’re talking about forced labour. An example of that might be an employer saddling a person with a fake or inflated debt, and then forcing them to work long hours to pay it off.  

So the US has taken a stance on that?
Yep… The Trump administration says that the existence of forced labour in many of the countries it does business with is not good enough, and it says those countries  - including Oz - have failed to do enough to combat it. Specifically, we’ve copped a higher tariff because we don’t have a law that bans modern slavery when it comes to imports. Canada does, so it has a 10% tariff. In a nutshell, that’s the White House’s argument for this new round of tariffs…

What has the Australian Government said about it?
Prime Minister Anthony Albanese says our modern slavery and forced labour legislation is world-leading, and he’s called the tariff unjustified. Recently, Attorney-General Michelle Rowland announced that criminal charges would be levelled against big companies failing to take action on modern slavery - some say that might’ve been an attempt to head the new tariff off, but it doesn’t seem to have worked… 

Are our laws tough enough in that area?
Not everyone agrees that we’re doing enough. Anti-Slavery Commissioner Chris Evans says Australia has fallen behind on that front and our laws could be stronger - though he also says the White House is using the issue as a sideshow to get its tariff agenda through.

What’s the USA’s record like when it comes to modern slavery?
The Walk Free Global Slavery Index says over a million people are currently living under modern slavery conditions in the US. So that’s another wrinkle to this whole debate - they’re calling out other countries for something they don’t have the best track record on.

So, how will the new tariffs affect us here in Oz?
The National Farmers Federation says it’s profoundly disappointed, and the business sector also isn’t thrilled. But it’s also worth recognising that things aren’t dramatically different to how they were before - 2.5% higher isn’t ideal for many Aussie businesses, but it could have been worse.

How so?
We’re in a good position in that we’re one of the few countries that the US has a trade surplus with, meaning we buy more from them than they do from us. And data shows that our exports to the US have increased since the tariffs came in…

Why is that?
Trade Minister Don Farrell says our US exports have gone up by 67% since the tariffs came in. And beef, gold and copper are still exempt. But we’re not completely out of the woods - one concern is the upcoming pharmaceutical tariffs due to come into effect in part on 31 July, and then in full on 29 September…

Tell me about that one…
It’s a much bigger tariff of 100%, and given that pharmaceuticals are one of our bigger exports to the US, that’s likely to have a much more noticeable impact on that particular industry. So there’ll be a lot of eyes on that one as we get into the second half of the year… 

Is anyone challenging the latest round of tariffs?
It wouldn’t be a Trump tariff plan without a stack of legal challenges. Already, small businesses in the US are taking them on in the courts - it was their lawsuits that sank the last ones, so we’ll see if they’re successful again, although legal experts reckon this latest batch are more legally sound and will be much harder to take down. Stay tuned…

Onto our Recommendations

Reading: This explainer by the ABC runs through the impacts for Australia of this latest tariff move by the US and what some business experts say might happen now…

Reading: This article from Time which looks at why President Trump loves tariffs so much - it unpacks the US’ relationship with tariffs over history and explains how they don’t always make things easier for American businesses, particularly not small ones.

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