The grim reality of what Trump’s savage tariff trade war could mean for Australia – and the impact it’s set to have on ALL families here

Aussies consumers could end up paying more for everyday goods, regardless of whether or not Donald Trump slaps tariffs on Australian products.

The new United States President has wasted little time fulfilling an election promise to impose the most punitive import taxes since 1930 – and he has used executive orders to go harder than he did the last time he was in the White House.

Canada and Mexico have been slapped with 25 per cent tariffs on goods coming into the US, either to bring back American manufacturing jobs or apply political pressure on border security.

China has been hit with 10 per cent tariffs, but they could rise even higher, given that Trump campaigned to inflict a 60 per cent tariff on Chinese goods. 

The Australian government is hoping the fact the US has had a trade surplus with Australia, going back to 1952, means the second Trump administration will give Australia an exemption.

The same logic saw Australia given an exemption in 2018 from 25 per cent tariffs on steel and 10 per cent import taxes on aluminum.

Then-Coalition prime minister Malcolm Turnbull won the reprieve when he pointed out at the time that Australia bought more goods from the US than they bought from Down Under.

Seven years later, Labor successor Anthony Albanese is trying the same tactic in 2025.

Trump is obsessed with trade surpluses and as the author of The Art of the Deal, analysts expect him to continue to honour the US-Australia free trade deal which came into effect in January 2005. 

But here’s what could happen with Australia’s third biggest two-way trading partner in the weeks ahead if the US does renege on this deal – or maintains the current status quo.

1. Widespread American tariffs weaken the Australian dollar

The Australian dollar on Tuesday fell below 61 US cents for the first time in almost five years.

Even if Trump spares Australia from his tariffs, American import taxes are more likely to boost the US dollar, in turn weakening the Australian dollar.

That’s because weaker American demand for imports, as a result of the tariffs, means less US dollars being spent on imported goods. This results in less demand for foreign currencies. 

That leads to a weaker Australian dollar, which only makes imports like cars and electric goods more expensive, regardless of where they are made in the world as goods are often priced in US dollars on wholesale markets – not to mention pricier overseas holidays.

Moomoo market strategist Jessica Amir fears the Australian dollar will sink below 60 US cents in coming months, falling to levels last seen in March 2020 during the start of the Covid pandemic. 

‘There’s a lot of downside pressure mounting on the Aussie – that’s why the lows usually get tested,’ she told Daily Mail Australia.

‘There’s a real sense of seriousness that the Aussie dollar could get to the lows of 2020.’

For consumers, this will mean more expensive imports, because wholesalers will be forced to pay more for things like electronic equipment.

‘Everything’s going to get a lot more expensive because the US dollar’s continuing to climb,’ Ms Amir said.

‘The lower Aussie dollar is not very good for the average consumer, that’s the reality.

‘The cost of Australia’s imports will rise – JB Hi-Fi might be forced to increase the price they have to pay simply because they’re paying a higher exchange rate and that goes across the entire spectrum.’

2. Inflation stays higher, economic growth weakens

As Canada has demonstrated, countries hit by American tariffs are likely to respond in kind, leading to a trade war.

Components for goods are often imported and if parts cost more, production costs are likely to go up. 

Saxo chief macro strategist John J. Hardy said trade wars were likely to lead to higher inflation.

‘If these tariff moves and countermoves from US trade partners are sustained, we are effectively in a trade war with all the associated fallout for growth and prices and disruptions to supply chains and companies,’ he said.

Mr Hardy warned of weaker economic growth occurring at the same time as high inflation, reviving the horrors of the late 1970s and early 1980s when the global economy suffered from stagflation, or high unemployment and inflation. 

‘How much the market fallout continues to deteriorate – beyond a significant correction of perhaps several per cent in stock markets – depends on whether the new tariffs are quickly rescinded because an agreement is reached, or whether this devolves into a tit-for-tat cycle,’ he said.

3. Reserve Bank cuts interest rates

Paradoxically, while more expensive imports add to inflation, they also make interest rate cuts from the Reserve Bank more likely.

AMP chief economist Shane Oliver said this was because trade wars would also weaken economic activity. 

That would make the possibility of a recession more likely than high inflation, even though consumers are paying more for goods.

‘Trump’s trade war adds to the case for an RBA rate cut as it’s more of a threat to Australian growth than inflation,’ Dr Oliver said.

Ms Amir said slower global economic growth could see the Reserve Bank cut rates to boost economic activity, even if more expensive imports stopped underlying inflation falling the mid-point of its 2 to 3 per cent target.

‘Markets are telling us we’re adjusting for a painful readjustment for slower, global economic growth,’ she said.

‘Sure, the RBA will be seriously considering what that means for the trajectory of interest rates.’

Financial markets are expecting an RBA rate cut on February 18 with more to follow in 2025. 

4. China dumps goods on Australia, AI war ramps up

China, Australia’s biggest trading partner, could end up dumping manufactured goods like electric cars on Australia to get around those American tariffs. 

This could see a flood of Chinese-made cars from the likes of BYD and Great Wall Motors. 

That could in turn bring down prices considering Australia also has a bilateral free-trade deal with China, meaning goods from there don’t incur any import taxes. 

‘BYD has already got the cheapest EV in Australia – they’re actually benefiting people like you and I, making EVs more accessible,’ she said.  

Ms Amir said that would mean more demand for copper and lithium, used to power computers and electric vehicle batteries.

This could potentially benefit lithium miners like Pilbara Minerals, Liontown and Rio Tinto, or copper producer BHP. 

It also comes as the world’s economic and military superpowers engage in an AI race, with Chinese start-up DeepSeek demonstrating it could develop artificial intelligence at a lower cost than its American competitors like ChatGPT. 

‘AI is going to get much more cheaper for the average business to adopt and that means we’re going to be needing a lot more resources such as the key metals to make these chips but also to build our data centres,’ she said. 

5. Australian exporters suffer

The US is Australia’s third biggest trading partner after China and Japan.

Beef, precious metals, pharmaceuticals, aluminium, aircraft parts and wine are Australia’s biggest exports to the US.

Dr Oliver pointed out exports to the US made up only four per cent of Australia’s total exports, but were still vulnerable.

‘Australia has a trade deficit with the US but they could still be hit if Trump’s motivation is mainly to shift production back to the US and raise tax revenue,’ he said.

Treasurer Jim Chalmers argued the fact the Americans had a trade surplus with the US going back to 1952 could see Australia spared.

‘We’re not surprised but we are confident that we can navigate these new policies coming out of the US,’ Dr Chalmers told reporters on Tuesday.

‘We are well placed and we are well prepared to deal with these developments.

‘We’ve also got a very different economic relationship with the US than some of the countries which have been the focus of the last few days.’

The American goods trade surplus with Australia stood at $US17.7billion in 2023.

‘The Americans run a very substantial trade surplus with us,’ Dr Chalmers said.