This briefing note assesses trade and United States of America (US) tariffs, including an explanation and learnings for Australia. Through the imposition of trade tariffs, the US administration has fundamentally disrupted the global economic landscape, posing new challenges to economies worldwide, including Australia.

This note seeks to explain the economic basis for tariffs, the apparent motives and impact of the so-called US ‘Liberation Day’ tariffs, the benefits of trade, the exposure of the Australian economy to tariff wars, as well as discussing potential responses.

Key insights

• Despite claims to the contrary, the US Liberation Day tariffs are not ‘reciprocal’.
• The risks to Australia from US tariffs are as much indirect as direct, via their impacts on global markets and the economies of its regional trading partners.
• Australia’s trade with China was worth $2,600 per Australian household in 2022-23, and lowered prices by 4%.
• Australia’s strategy of protecting fair trade while diversifying export markets should drive payoffs in the longer term.
• Financial markets have priced in rate cuts from the Reserve Bank of Australia in response to an expected slowdown in global economic activity from the US tariff cuts.