US President Donald Trump has halted his threatening 25 % tariffs on imports from Canada and Mexico in a busy 24 hours of trade diplomacy, while retaining 10 % tariffs on imports from China.
A temporary relief has been granted to American businesses operating in Canada or Mexico, like as Rio Tinto, whose American operations export billions of dollars worth of aluminum to the US. However, businesses that import to our largest buying spouse may be affected by the risk of weaker economic growth in China.
And Trump has hinted all US imports of , aluminum and copper, including from Australia, may be his next destination. Treasurer Jim Chalmers stated on February 4 that while Australia is at risk from rising industry tensions,” we are really well-placed to explore them.”
However, even if Australia manages to stay out of Trump’s places, Australians may hope to come out of a business war unharmed. It is difficult to determine exactly how Australia would be impacted by the complexity of global supply chains, but here are a few important factors that are likely to enjoy.
About 40 % of Australia’s exports go to China, making it the biggest target by way, according to statistics for 2023 from UN Comtrade. The majority of this is used in China’s manufacturing and construction sectors, where American iron ore is used.
Trump’s tariffs will further slow China’s market, which will lessen demand for goods it purchases from Australia.
If China’s need for iron iron falls drastically, this will not only harm the Australian mining field, but it also may cause a fall in the American dollar, making the things Australians buy from overseas more expensive.
However, it’s still to be seen how much China’s most recent tariffs will have an effect. The second Trump administration’s taxes have already been absorbed by China, and his most recent enhance is much less expensive than his original proposal of 60 %.
Trade escape
The one good side of US tariffs on other nations is that they may make some American exports more economical because they raise the cost of those nations ‘ export to the US.
This is something economics call industry escape. For instance, metal produced in Australia would have benefited from the tariffs placed on French aluminium.
Because there isn’t much overlap between the goods that China and Australia export to the US, the taxes on China may largely distract industry to Australia.
But China’s punitive taxes could make a significant impact. During Trump’s first word, China reacted to US tariffs by imposing taxes on American grains and other agricultural products. This time around, a similar action might open up a gap for American farmers to fill in the gap.
But it is not all great information. In other nations, US exports that have been diverted from the Chinese market does compete with Asian products. But, while American grains may become more aggressive in China, US grains may remove Australia’s in the Philippines.
Taxes even have a tendency to increase the country’s currency because they lower the demand for goods in foreign currencies.
The American dollar, on the other hand, weakened, which dropped to a five-year small following the tariffs ‘ inauguration. The dollar has now fallen almost 10 % since November.
Repeatedly, this raises the cost of goods to Australia, which was raise inflation.
Network disturbance
The biggest impact will be the supply chain disruption that will result from the taxes on Canada and Mexico being confirmed in 30 days.
According to analyses of the levies Trump imposed on China in 2018, US companies that use imported sources accounted for the majority of the cost.
The impact of taxes on Canada and Mexico will be much more detrimental to all North American producers because North American generation networks are so tightly integrated, and they have been for decades.
The issue is not just that auto prices will rise, but that significant disruptions could result from the tariffs if essential middle suppliers, such as small but important intermediate suppliers, stop operating.
Finally, firms will create substitute supply chains, but the short-run problems could be substantial.
This could lead to higher prices and supply disruptions for Australians, not just for the goods we purchase from the US but also for anything that relies on a North American dealer at any point in the production process.
We are also experiencing the effects of Covid’s supply chain disruptions, such as the rise in inflation in 2021 and 2022 and the resulting high interest rates and world opposition to the main political parties. That includes Donald Trump’s returning to the Oval Office.
If this conflict turns into a significant global trade war, there might be other problems. Even if Trump’s promised tariffs not truly materialize, we may still see the same effects on a smaller size because the , trade policy uncertainty , from just the threat of a trade war has similar effects on the firm exercise as true tariffs.
Whatever happens, even if Australia can escape direct involvement in a trade war, it cannot escape the shockwaves that reverberate through the world economy. The question is whether it will be a tsunami or a ripple.
Scott French is senior lecturer in economics, UNSW Sydney
This article was republished from The Conversation under a Creative Commons license. Read the original article.