The recent reintroduction of tariffs by the US Government has created significant challenges for Australian businesses engaged in international trade.
These tariffs, aimed at protecting domestic US industries, have far-reaching consequences for supply chains and overall business operations. However, there are opportunities for Australian businesses to adapt and even thrive in this evolving landscape.
Developments with US, Canada, Mexico, and China
The US has imposed new tariffs on imports from Canada, Mexico, and China, scheduled to come into effect on April 2 2025. These include a 25 per cent duty on imports from Canada and Mexico, with certain energy resources subject to a reduced 10 per cent tariff. It's important to note that trade qualifying under the United States-Mexico-Canada Agreement (USMCA) will be exempt from these tariffs until April 2, however around 50 per cent of US imports from Mexico and 62 per cent from Canada will still face tariffs as they don’t qualify under this agreement.
Tariffs on Chinese imports have been raised from 10 per cent to 20 per cent, on top of the Most Favoured Nation (MFN) rates and the Section 301 rates. These actions are part of a larger plan to increase US federal revenues, lower the trade deficit, and safeguard domestic industries. In a recent UNSW article titled
‘How US tariffs impact Australia and what policymakers can do’, UNSW International Trade expert Dr Scott French claims that the tariffs will have a net negative effect on the Chinese economy, stating: "China is such a big importer of iron ore and other minerals, that anytime the Chinese economy slows down, demand for these things also goes down," in reference to the possible implications on the Australian economy.
Steel and Aluminium developments
Starting March 12 2025, a 25 per cent tariff will be imposed on all steel and aluminium imports, including derivative products. This move aims to protect the US steel and aluminium industries from global excess capacity and ‘unfair trade practices. The tariffs will apply to imports from countries that were previously exempt such as Australia, Canada, and the EU. In a recent article
‘What is the impact of tariffs on Australian industry’, experts in international trade from the University of Sydney’s School of Economics say that Australia exports approximately 10 per cent of domestic aluminium and steel to the United States and suggest that these exports could be redirected to other markets.
While exemptions are unlikely, Australian exports could remain competitive compared to competing exporters who have taken a retaliatory stance on the tariffs, such as Canada and China. Canada plans to impose reciprocal tariffs, while China has introduced tariffs on US coal, liquified natural gas, and other commodities. These actions are likely to disrupt global trade and supply chains, creating uncertainty and potential cost increases for businesses worldwide, which may in turn lead to higher prices, reduced trade volumes, and increased volatility in global markets.
Impact on Australian businesses and steps to prepare
From an Australian perspective, the biggest risk is a global trade war which would ultimately weaken demand and manufacturing output in primary markets such as China. Australian businesses – particularly those with supply chains linked to the US, Canada, Mexico, and China – will face increased costs and potential supply chain disruptions.
However, there are also opportunities that may arise. Australian companies that are primary trading partners with the US may face a net positive due to the impact the tariffs will have on other economies. Canada, China, and Mexico will face heavier consequences due to their over-reliance on the US market and may need to import less due to increased costs, meaning the US might look to secondary markets like Australia to fill the gap.
Key industries such as retail and manufacturing should consider diversifying their supply chains, exploring alternative markets, and engaging in proactive cost management to navigate this evolving trade landscape.
To further navigate the complexities of US tariffs and maintain a competitive edge, businesses might consider the following strategies:
- Tariff classification: Modify product design or manufacturing processes to classify goods under different, more conservative tariff codes.
- Diversify suppliers: Look to source materials domestically or from countries with lower or no tariffs.
- Leverage free trade agreements and duty exemption schemes: Utilise existing free trade agreements to reduce or eliminate tariffs and accessing a diverse range of duty exemption schemes available in any given country.
- First sale rule (US only): Declare the transaction value based on the first sale to a middleman, which can be lower than the final sale price.
Transfer pricing plays a crucial role in determining the customs value of imported goods. We recommend that you:
- Review transfer prices: Review your existing transfer pricing policies to ensure they are robust and reflect the economic impact of tariffs, ensuring compliance with the arm's length principle.
- Undertake benchmarking: Use industry benchmarks to justify transfer pricing adjustments and ensure they align with market conditions.
- Review documentation: Continually review documentation to support transfer pricing methodologies and customs declarations.
From a budget perspective, domestic businesses and industries affected by tariffs need Government support in the face of international trade challenges. A review of tariff policies is important to ensure that Australian businesses are given a more even playing field in respect to competition from overseas imports, especially in targeted areas for growth. For retailers, this could include a review of the Low-Value Goods rules (or De-Minius), in line with what has occurred in the US, to provide a greater scope for competition in domestic markets. Such measures could also generate additional revenues for the government in the form of extra duties and GST.
The reintroduction of tariffs by the US Government presents significant challenges for Australian businesses. However, by staying informed, adapting their strategies, and seizing new opportunities, businesses can mitigate the impact of these changes and continue to thrive in a complex global trade environment.
For further information and assistance, please contact our customs duty advisory team.
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