Tariffs, Tensions, and Trade: What’s Next for the Australian Economy?
Written By: Bonnie Li, Natalie Hui, Robin Zhang
Published: 27 July 2025
Overview
Over the past year, global trade dynamics have shifted rapidly, with growing uncertainty stemming from renewed US protectionism under Donald Trump’s leadership. As a country that relies heavily on global markets, where exports and imports together made up 47.1% of Australia’s GDP in 2024, this presents new and evolving challenges. With tariffs reimposed on key goods such as steel, aluminium and pharmaceuticals, and further increases flagged in the near future, concerns mount over Australia’s economic exposure. While some analysts see the possibility of capital flows being redirected toward Australia, others caution that the longer-term impact could be far more complex, with global volatility threatening to slow growth and unsettle regional trade ties.
How Diversified Are Australia’s Trade Relationships?
Australia’s export base is broad, but not risk‑proof. China still absorbs roughly one‑third of our exports, with Japan, South Korea and India forming the next tier of partners. The United States, despite its political and cultural weight, takes only about 5% of Australia’s outbound trade. Yet Washington’s policy pivots are already reshaping expectations well beyond that modest share.
Since April 2025, all Australian exports to the US have worn a new 10% blanket tariff, followed in June by a 50% hit on steel and aluminium, industries that were already margin‑squeezed. The pipeline looks harsher with a flagged 200% tariff on pharmaceuticals, a major Australian export to the US, and a potential 50% tariff on copper. Compounding the risk, many of Australia’s other trading partners now face reciprocal or US-imposed tariffs as high as 125%, lifting the probability of retaliation, supply-chain rerouting, and broader trade fragmentation. In short, diversification helps, but concentration in China and escalating US-led tariff volatility still leave Australia exposed.
How Exposed Is Australia to the US Trade Shock?
Australia runs a trade deficit with the US, meaning we import more than we export. As a result, the immediate effect of tariffs on Australian exporters appears limited, with price shifts more likely than any significant hit to export volumes.
But the broader risk lies elsewhere. US trade actions send shockwaves through the broader global economy, especially China, our largest trading partner. China’s industrial output, commodity demand, and investor sentiment are tightly tethered to global confidence. If US protectionism dents Chinese growth, even indirectly, Australia’s resource-heavy export profile could face significant pressure. The ripple effects from falling iron ore prices, weakened business confidence, or supply chain volatility may end up hurting Australia more than the initial tariffs could.
Unexpected Winners: What’s Driving Australia’s Beef Boom?
In the midst of rising tariffs and growing trade tensions, one industry has stayed resilient, Australian beef. While many feared the newly imposed US tariffs would drag the sector down, the opposite has happened. In the first quarter of 2025, beef exports to China jumped by 40% year-on-year, with nearly 22,000 tonnes shipped in just February and March alone.
So, what’s behind this unexpected success?
A major factor has been supply-side constraints in the US. Ongoing drought conditions have significantly reduced American cattle herds, leading to a tight squeeze on supply and soaring domestic prices. On average, US beef is now selling for A$6.92 per kilogram, while Australian beef comes in at just A$3.46/kg. This massive price gap has given Australian producers a clear edge, even with tariffs in place.
At the same time, geopolitical tensions between the US and China have led to a realignment of supply chains. Chinese importers, looking to reduce their exposure to US goods, have increasingly turned to Australia for their meat supply. This surge in demand has helped offset tariff pressures and transformed what was once seen as a vulnerability into a strategic win.
But the landscape is shifting again.
Just this week, the Australian government officially lifted long-standing biosecurity restrictions on US beef imports, a move welcomed by the Biden administration but met with concern from local producers. While the federal government insists the decision was based on scientific evidence following a decade-long review, some fear it was politically motivated, timed to de-escalate tensions with Washington amid the broader tariff standoff.
The response from industry has been mixed. Industry body Cattle Australia acknowledged the scientific basis of the decision, while warning of increased competition at home. Meanwhile, analysts and economists remain sceptical about the real impact of US beef re-entering the Australian market. With high US prices and limited supply due to drought, American beef is unlikely to displace domestic products in the near term. As an NBC News analyst put it, “Trump may be bullish, but Aussie freezers probably won’t be filled with US steak anytime soon.”
What Does Australia’s Broader Economic Picture Look Like?
While booming beef exports offer a silver lining, the wider economic outlook remains uncertain. Growth expectations are softening, with the IMF cutting Australia’s 2025 GDP forecast from 2.1% to just 1.6%. That downgrade reflects mounting concerns around sluggish inflation, rising unemployment, and global uncertainty. More significant risks lie in what happens abroad, particularly in China. As our biggest trading partner, a prolonged downturn in the Chinese economy could mean trouble for Australia’s key export sectors like iron ore, coal, and natural gas. This would weigh on terms of trade, potentially lead to job losses, and trigger a broader cooling in economic activity. Beyond the obvious trade impacts, second-order effects, like reduced investment, falling commodity prices, and weaker business confidence, may end up doing more damage than the tariffs themselves.
How Has Australia Responded?
Rather than meet tariffs with tariffs, the Albanese government has taken a strategic approach, one that prioritises long-term resilience over short-term retaliation. Central to this response is a “five-point plan” aimed at helping Australian industries adapt and diversify in the face of rising global trade uncertainty. This includes:
1. A $50 million program to help businesses find and enter new export markets
2. A $1 billion interest-free loan facility to support sectors hardest hit by trade disruptions
3. Stronger anti-dumping protections, especially for vulnerable industries like steel and aluminium
4. A “Buy Australia” campaign, backed by a $20 million investment and changes to government procurement policies
5. Plans to create a “Critical Minerals Strategic Reserve”, ensuring access to essential resources in volatile global markets
Much of this builds on lessons learned from past trade shocks. The 2022 India-Australia Economic Cooperation and Trade Agreement (ECTA) has already shown promising results, with notable gains in horticulture, machinery, and wine exports, and a 200% surge in rice imports from India.
Australia is also working to revive its long-stalled Free Trade Agreement with the EU. To sweeten the deal, the government has proposed abolishing the $5.2 billion luxury car tax, a move designed to appeal to European automakers while also paving the way for better access to European agricultural markets.
Looking ahead, how can we lessen our dependence on volatile markets?
With the US and China becoming increasingly unpredictable trade partners, reducing our reliance on these markets is a strategic imperative. In response, the Australian government has committed a $2 billion investment facility aimed to strengthen commercial ties with Southeast Asia, one of the world’s fastest-growing regions.
In parallel, the United Arab Emirates has eliminated tariffs on 99% of Australian exports, opening up new opportunities for expanded trade in agriculture, resources, and services across the Middle East, a growing market.
These developments reflect a broader shift in Australia’s global trade posture, away from dependence on a few dominant partners, and towards a more balanced, diversified, and resilient portfolio.
