Trump's tariffs: The impact on Australian manufacturing

The Trump administration has introduced tariffs in its first weeks of government, primarily aimed at imports from Canada, Mexico and China but also more broadly on steel and aluminium, regardless of the country of origin.

While the re-emergence of tariffs from the United States will have many direct trade impacts, including the primary effect of perhaps slowing some of our exports to the US, Australia’s manufacturing sector is of such a size that it will be the secondary and tertiary effects of the Trump trade system that will also affect Australia’s manufacturers.

The Australian government has a job to do: to decide not just how we deal with President Trump’s intended tariff regime, but what we do with the responses to those tariffs from major manufacturing territories such as India, China, ASEAN and the EU. This is before we settle on a response to the White House itself, which could include reciprocal tariffs – an interesting posture as far as Australian industry is concerned because many inputs into our manufactured goods come from the USA.

While acknowledging that both the US and Australia already have tariffs on many goods – and that Australia and the US also have a Free Trade Agreement (FTA) – we should have a look at the broader impact of what Trump is proposing.

Steel and aluminium: the specific 25 per cent tariff announced by Trump is not an isolated event. The Biden administration in 2024 had already increased tariffs on Chinese steel imports (to 25%) and Mexico and the EU had done the same. They were defensive tariffs to stop Chinese dumping (when surplus goods are sold into other countries at uneconomic prices). The problem for Australia is that aluminium and steel are still strategic components of Australian manufacturing, which flow into our ability to make a host of goods domestically. They also generate important export earnings. If they are curtailed by the US tariffs, we risk losing a crucial component of Australian manufacturing – not just the export revenue and subsequently an important sovereign manufacturing industry, but the extra US tariffs could accelerate China’s steel dumping program with Australia being a key target. The Trump Tariffs take force on 12 March and I assume there’s a 50/50 chance that the US will carve-out Australia from the aluminium and steel tariffs because the American strategic view of the Indo-Pacific is not aided by Australia losing part of its industrial base and becoming dependent on China for key metals.
Reciprocity: the headlines on US trade policy have focused on Canada, Mexico and China – and on metal imports – but a more important aspect of the Trump administration’s trade policy will be the ‘reciprocal tariffs’. These are likely to have a larger effect on Australian manufacturing’s diverse supply chains. President Trump has a taskforce exploring reciprocal tariffs, where the US will simply match the tariff charged on specific US goods into, say, Malaysia. ‘You charge us 20 per cent – we’ll charge you 20 per cent’. There’s a really good article in the Council on Foreign Relations’ publication that spells out the policy and the practicalities. I would point out that trade reciprocity is not new: President Trump first introduced the concept to China in his first term as president, in 2018. We should also not be too critical of President Trump: a universal version of reciprocity was supposed to operate in the World Trade Organisation (WTO) but a number of WTO members – China included – did not abide by it.
Supply chain Costs: Australia is a small economy and we take a lot of inputs from the United States (lubricants and additives for example) at our company. Even a relatively low upturn in import tariffs into the US – for instance, 10 per cent – will be felt by the US industrial supply chain and will be passed-on to its customers, such as Harrison Manufacturing on the other side of the Pacific. The United States is a massive manufacturing economy and there are tens of thousands of US-sourced goods that are used in our manufacturing value-chains. The influence of the US economy on the world is great and the ripples of reciprocal tariffs – which really just lift the global cost of doing business – will be felt throughout the supply chains that Australia relies on to make its own goods.
Dumping: a tertiary effect of the Trump Tariffs is likely to be a prolonged program of other tariff-effected countries dumping into ‘open’ markets such as Australia. When the cost of inputs from the US rise and countries such as China and India avoid the US market because the tariffs are prohibitive, they will dump goods in countries such as Australia at uneconomic prices. The result will be our domestic manufacturing enterprises shut down because they cannot compete with cheap imports. To stop this happening, the Australian government will have to put on its own tariffs or enforce its antidumping measures.
Shipping costs: the Panama Canal is the sea lane through which so many exports from the American East Coast and Gulf make their ways to Australia. The Panama Canal has just endured a low-throughput period because of a drought in 2024, creating shipping backlogs and increased costs to counterparties waiting for their goods. When the Canal is sub-optimum the alternative route around the bottom of South America adds 8-10 days to the journey, increasing shipping costs and disrupting production schedules for manufacturers. If President Trump insists on new governance arrangements for the Panama Canal (even if they are for the best), there is potential for uncertainty, increasing shipping costs not the least because insurers and trade financiers add a risk premium to the Panama Canal. It might be that President Trump can create a more certain trade environment in the Panama Canal in the medium term, but in the short-term Australian manufacturers relying on US imports will pay the price for the perceived risk of disruption.
China growth: the Chinese government is pushing for economic growth as economists forecast 4-6 per cent GDP growth in 2025 and lower in 2026. The Chinese government can use monetary easing to promote domestic production and depreciate the currency to prime exports especially to ‘free trade’ partners such as Australia that are unaffected by the US tariffs. A Chinese industrial sector desperate to grow markets in free-trade nations will do so with low prices and high volumes and Australian manufacturers will pay the price for the expected glut. On the one hand manufacturers will benefit from lower input costs, but fully value-added manufactured goods – dumped at uncompetitive prices – will cost manufacturing jobs in this country.

Conclusion: President Trump’s approach to trade is an open secret – he was talking about it during the election campaign, and he had already made some of these tariff moves during his first term. Australian industry and government have the opportunity to model the effects on our economy (and manufacturing sector) and make adjustments before the tariffs begin. Some of those adjustments within industry might be about sourcing new supply chains or bringing onshore some otherwise-imported goods. Government could look at the tariff structures, they could introduce real antidumping measures, or they could also be the pressuring the WTO to tighten its rules and enforce them on member nations.