Liberation day’ a headwind, but won’t derail Australian economy

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• US President Trump has announced a new tranche of ‘reciprocal’ tariffs, establishing a 10% minimum tariff on all trading partners, and a considerably larger escalation for several economies in the Asia-Pacific region.

• Australia will fall under the 10% tariff schedule. Although Australia does not have any tariffs on imports from the US, restrictions on the import of meat and fruit from the US (enacted in response to disease and pest outbreaks) have drawn the ire of the US administration. Absent these barriers, it is not clear exports of these items from the US to Australia would be material.

• As we have emphasised previously, the direct exposure for Australian exporters to the US is small at the macro level; less than 4% of Australian goods exports go to the US. Still, the US is a major market for some Australian exporters. Meat and pharmaceuticals are the largest segments that will be affected (although a substantial share of pharmaceuticals exports will be exempt for now). Australia’s competitiveness has not deteriorated against other exporters – indeed it has improved against economies facing a higher tariff schedule. Nevertheless, competitiveness against US domestic production will worsen.

Chart 1: Australia’s direct exposure to the US is small