What Trump's tariffs will mean for Australia

US President Donal Trump has described 'tariff' as the most beautiful word in the dictionary.

But for Australia and other nations, it is a word that is more likely to elicit fear in the wake of Trump's imposition of steep global tariffs.

The direct effects of the 10% tariff on Australian goods exported to the US is likely to be small. The US is Australia's fifth largest goods export market, with exports worth $34 billion in the 2023 calendar year. But that is overshadowed by $218 billion worth of exports to China and $90 billion worth to Japan.

However, Australia's most important trading partners have been hit with steep tariffs, including China, which will have total US tariffs of 54%.

"[The tariffs] will also cause some intentional or collateral damage to other important trading partners of ours, such as Japan and Korea and Southeast Asian nations, all of which have been hit with much higher tariffs than we have been," says economist Saul Estlake.

These economies import raw materials and fuels such as iron ore, coal and gas that they use to make goods for export to the US.

"The greater risk for us is that our exports to our much more important trading partners will be adversely affected by the impact of us tariffs on the exports of those trading partners to the US, and there would be both price and volume effects."

Additionally, uncertainty about the extent to which other countries retaliate and the US in turn further increases tariffs - US President has the authority to unilaterally impose higher tariffs - are likely to slow business investment and hiring and consumer spending.

The 10% tariff on Australia is what Trump calls the "minimum baseline tariff" that will apply to goods coming into the US from anywhere in the world, unless higher tariffs are imposed.

The main impact to Australian industry will be on beef producers. Beef is Australia's largest export to the US, worth $3.3 billion in 2023-24.

Other important exports to the US including gold and pharmaceutical products - the second and third largest exports - will be exempted, along with wood products, copper and critical minerals unavailable in the US.

Wine will attract the tariff, but Penfolds maker Treasury Wine Estates said it won't have material impact on its business and most of the wine it sells in the US is grown in the US.

Markets reacted quickly to Trump's Thursday morning tariff announcement, with Australia's S&P/ASX 200 index shedding $21.4 billion or 0.9% on Thursday and much more on Friday following falls of around 5% in US benchmarks the S&P500 and Nasdaq.

Other countries that the US administration believes are most responsible for the US's massive will be high with higher imposts, in particular China. The European Union's 20%, Japan 24%, South Korea 25%, India 26%, Vietnam 46% and Cambodia 49%.

Prime Minister Anthony Albanese quickly ruled out imposing reciprocal tariffs, saying that this would increase prices for Australian households. "We will not join a race to the bottom that leads to higher prices and slower growth," he told reporters.

Instead, he has left open the possibility of filing challenges in the World Trade Organisation arguing the tariffs breach the provisions of the bilateral free trade agreement with the US. Australia might win the case, but it would be a symbolic victory only because the US has blocked the appointment of appeal judges to the WTO, meaning it cannot resolve cases.

The introduction of steep tariffs by the US in 1930 kicked off a global trade war and intensified the effects of the Great Depression, but didn't cause it.

A recession in the US, especially if it's accompanied by recessions in other countries could induce one here, says Saul Estlake, although he doesn't believe this is the most likely scenario. "The probability of a global recession is no longer close to zero, and it is rising," he said.

Economists at the National Australia Bank said the tariff announcement "intensifies downside risks to global and US growth certainly with respect to the magnitude of the tariffs imposed on Australia's main trading partners (overwhelmingly in Asia)".

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