U.S. global reciprocal tariffs: Implications for Australia

Stock markets around the globe were in free fall, reciprocal tariffs are being implemented or considered by many countries and there is a very real threat of an all-out global trade war.

In response, as of 9 April 2025, a 90-day reprieve on the full amount of reciprocal tariffs has been provided by the U.S. with the exception of China, which now has a tariff of 125 per cent on Chinese imports into the U.S. in response to China’s reciprocal tariffs on US Imports. Noting that the reprieve has not removed the base line tariff of 10 per cent for all other countries.

In Australia, businesses continue to be faced with the impact of the long-promised tariffs the U.S. has implemented. Notwithstanding a number of other countries have had significant additional ‘reciprocal tariffs’ imposed on them by the U.S. in response to perceived trade imbalances with those countries, these tariffs could have lasting consequences on both the bottom line of Australian businesses and the price of both exported and imported goods.

U.S. President Donald Trump’s decision to impose a 10 per cent base line tariff on almost all Australian manufactured goods raises concerns for the Australian economy, which is already impacted by the 25 per cent U.S. tariffs on steel and aluminium products. To clarify, there will not be an additional 10 per cent tariff on these steel and aluminium products that are already subject to the 25 per cent tariffs.

Whilst some specific goods are exempt from the 10 per cent tariff, including pharmaceutical products, copper, semiconductors, lumber, energy (petroleum products) and critical minerals that are not available in the U.S., Australia’s other exports will be impacted. Noting there are indications that the U.S. will remove the exemption for pharmaceuticals and possibly place even higher tariffs on this category of goods.

The U.S. has also eliminated the De Minimis Exemption for goods originating in China and Hong Kong (previously USD800 per shipment). As a result, all goods of Chinese or Hong Kong origin arriving into the U.S., will be subject to 90 per cent duty of the value of the goods, or USD75 per item from 1 May 2025 (rising to USD150 per item from 1 June 2025). This will also impact Australian e-commerce businesses manufacturing in China or Hong Kong.

Impact on Australian exporters

The tariffs will make it more expensive for the U.S. to purchase goods from Australia – which for around 20 years has been duty free or has had negligible duties imposed due to the existence of the Australia-United States Free Trade Agreement.

Additionally, whilst the direct impact on Australia could have been worse when compared to many other countries, the fact is a large number of Australian businesses use manufacturing facilities across the Asia Pacific region, with some of those countries to incur reciprocal tariffs in excess of 40 per cent after the 90-day reprieve.

While some Australian businesses may look for alternative markets, such as Asia or Europe, the reality is the new tariffs will increase costs for a range of sectors, leading to potential delays, potentially higher shipping costs as supply chains shift, and squeezed profit margins. Companies will therefore need to reassess their pricing strategies and supply chains to stay competitive.

The flow on effect of the new tariffs could mean U.S. tariffs are applied multiple times in a supply chain. For instance, raw materials or goods are imported into the U.S. for processing, exported to Europe for manufacturing, then re-imported into the U.S. as finished goods. Whilst the U.S. does have a duty drawback scheme, it is not necessarily easy to access without specialist support, meaning the costs could be passed through the supply chain.

It's therefore important for Australian businesses to take a proactive approach in navigating this new tariff landscape.

Impact on the Australian domestic market

The broader question remains whether Australian businesses and consumers will feel the pinch.

Sectors like manufacturing and agriculture are exposed to U.S. markets. Whilst initial treasury modelling indicates the direct effects of the tariffs are expected to be small, price increases could ripple through to Australian consumers, especially for goods imported from the U.S. as previously noted. Australia is far more exposed to China as our largest trading partner, and it remains to be seen what the flow on impact of the massive tariffs on China will be on the Australian economy.

With supply chains already under pressure, the price of everyday goods could rise. While the Australian Government has announced it may intervene to shield certain sectors, businesses will likely face challenges in managing these cost increases.

For other materials and goods, there is a risk that businesses incurring significant tariffs in the U.S. may choose other export markets. The risk for Australian industries would be a dumping of goods into the Australian market to the detriment of Australian manufacturers.

For Australian businesses navigating this new tariff landscape, a proactive approach is recommended to adapt to market changes and thrive.

Australian Government response

The Prime Minister has announced the following measures to assist with the negative impact of these U.S. tariffs:

$5m to the anti-dumping commission to reduce case times, and better monitor goods and high-risk activities from overseas

$50m to help effected Australian industries find new international markets

A new economic resilience program within the national reconstruction fund which will provide $1bn of zero interest loans to help industry access new markets

Prioritising Australian firms in government procurement by requiring government to preference Australian businesses for procurement up to a threshold – including consideration of local content requirements for procurements above $1m

Establishing a critical minerals strategic reserve to underwrite critical mineral production and supply.

With the Australian Government presently in caretaker mode ahead of the Federal election on 3 May 2025, we await further detail of these measures should the current Government be returned to office.

How BDO can help

Now is the time for Australian companies to seek expert advice on mitigating the financial impact of the U.S. tariffs. With careful planning, businesses can find ways to adapt and continue to thrive despite the changing global trade environment.

Our experienced customs, international trade and excise team can support your business plan for additional tariffs if or when they are implemented in the U.S. Contact us today to learn more about how we can support your business.