The economic impact of Trump’s tariffs on Australia

Have you ever used Google Trends? The site tracks Google searches for words or phases over time. It can offer a really fascinating look into what people around the world are thinking about. 

For instance, if you were to search Trends for the word ‘tariff’ in the past 12 months, you’d see a few big spikes in the first half of 2025 – all, coincidentally, since the inauguration of US president and political celebrity Donald Trump.  

While there have been plenty of headlines in Trump’s second stint as president (the wrongful deportation of a man to El Salvador, mass firings from Elon Musk and DOGE, recommending himself as Pope), the big shift in economic policy regarding reciprocal tariffs has just about topped them all. It has, as our Google Trends search suggests, put tariffs and US economic policy under the microscope. 

So, then: what exactly is a tariff and how do tariffs work? And what might the impact be of Trump’s tariffs on Australia and beyond?  

With the expertise of Deakin University’s Dr Cong Pham, we take a closer look. 

What is a tariff? 

‘A tariff is a tax imposed by a government on goods and services imported from other countries,’ says Pham.  

A tariff may also be referred to as an import duty or customs duty. 

Tariffs are common; the World Trade Organisation lists tariffs applied by over 170 countries. Before we explain how Trump’s tariffs may impact Australia, let’s unpack exactly how tariffs work. 

How do tariffs work? 

Although the furore surrounding Trump’s tariff policies might distract from the underlying purpose (depending on your political view and preferred news source, anyway), there are definitely legitimate reasons for states to impose tariffs. According to Pham, tariffs serve three main purposes: 

1. ‘They protect domestic industries by making imported goods more expensive’
2. ‘They generate revenue for the government’
3. ‘They influence trade policy and negotiations between countries.’ 

In other words, tariffs could help businesses and industries facing international competition. They could also be used to help fill the government’s coffers or be imposed as a bargaining chip or weapon in international relations.  

How do tariffs impact the economy?  

The impact of tariffs (whether we’re talking about Trump’s tariffs on Australia or other examples) are neither wholly positive nor negative.  

According to Pham, there are several ways that tariffs might negatively affect an economy, including: 

• Forcing domestic businesses to increase prices 
• Economically damage businesses, households and industries 
• Causing international trade issues. ‘Tariffs can also provoke retaliatory measures from trading partners, escalating into broader trade conflicts or full-scale trade wars,’ says Pham. 

According to Pham, tariffs can adversely affect the economy by forcing businesses to increase domestic prices. They can also reduced consumer surplus and damage households and other industries. Perhaps most concerningly, tariffs can result in international tensions.  

It’s not all negative, though. ‘On the positive side, tariffs are a flexible trade policy tool that can support domestic industries by protecting them from foreign competition,’ Pham says. ‘This protection can be especially valuable for industries deemed strategically important or in their early stages of development. Tariffs can also serve as a source of government revenue, especially for countries that are major importers.’ 

Who pays tariffs?  

One of the big concerns about the impact of Trump’s tariffs on Australia is that Australian businesses could end up paying a lot in tariffs – with everyday Aussies paying the price as a result.  

Of course, it’s generally the businesses importing products who pay the price of a tariff.  

However, Pham says that both sides can end up paying when it comes to tariffs. ‘In the short run, both the exporters (foreign producers) and the importers (domestic consumers) generally bear the burden of the tariff. The side of the market that is less responsive to price changes ends up paying more of the import tax.’ 

The latest on Trump’s tariffs 

Donald Trump’s tariffs on Australia and elsewhere are what’s known as ‘reciprocal tariffs’, and they’re designed to offset America’s trade deficit.  

A trade deficit occurs ‘when the total value of everything [a nation] imports from somewhere else exceeds the value of what it exports there’.  

Despite the controversies around Trump’s tariffs themselves, Pham says it can be a good remedy for a trade deficit. ‘If the U.S. aims to reduce its trade deficits, tariffs offer a flexible policy tool that can be used to curb imports quickly.’ 

America’s reciprocal tariffs are also geared towards attracting investment in US industries, reducing reliance on other countries (like China, in particular), and boosting security. This means that, by design, Trump’s latest tariffs will have some impact on Australia. 

Is Trump putting tariffs on Australia? 

Yes, Trump is putting tariffs on Australia – and it’s already happened. ‘Currently, all Australian exports to the United States are subject to a baseline 10% tariff,’ says Pham. ‘In addition to this general rate, specific sectors face higher tariffs: Australian steel and aluminum exports are subject to a 25% tariff, while Australian film productions face tariffs of up to 100%.’ 

What do Trump’s tariffs mean for the Australian economy?  

In terms of the impact of Trump’s tariffs on the Australian economy, Pham says that Australia’s strategic importance to the US should mean that we won’t be hit as hard other countries.  

However, Australia may feel the impact of the US government’s approach to trading in other ways.  

‘It is likely that the Trump administration will also seek some degree of realignment in Australia’s trade relationship with China,’ Pham says. ‘In other words, Canberra may face pressure to partially diversify away from Beijing and redirect more of its trade toward the U.S. and its allies.’ 

What is the impact of Trump’s tariffs on Australia more broadly?  

Even beyond the direct economic concerns, Pham says that Australia will feel the impact of Trump’s tariffs. 

‘If Australia finds it necessary to gradually divert away from China in order to strengthen its security in today’s more polarised world and to reduce its over-reliance on the Chinese market, then the tariffs may indeed have broader implications beyond the economy,’ Pham says.  

There’s also a small chance that Trump’s tariff measures could impact relationships with leaders, including recently re-elected Australian prime minister Anthony Albanese. According to Pham, though, this is probably unlikely. 

‘In my opinion, the trade and foreign policy of the U.S. under Trump aligns closely with the realist school of thought, which holds that personal relationships among world leaders play a secondary role in international relations. In other words, state interests and the structure of power dominate how nations navigate crises and form alliances.’ 

The impact of Trump’s tariffs on Australia: key takeaways  

It’s clear that Trump’s tariff policies will have impacts on Australia – and we’re already seeing it play out in areas like Australia’s film industry.  

As Pham says, Trump’s tariffs may impact Australia in a number of ways –increased costs for local businesses exporting to the US, a potential shift in allegiance with nations like China, and a change in the fortunes of some industries and sectors are just a few examples.    

For now, it’s a watch-and-wait game. Trump has frozen some tariffs already and more changes may still be to come.