From wine and beef to pharmaceuticals and minerals, Trump’s global tariff regime opens up plenty of opportunities for South Australian companies writes Dr Susan Stone and Nick Gallus.
After a 90 day pause, US President Donald Trump announced the ‘final’ level of reciprocal tariffs.
These fell largely into three baskets. The first, of which Australia is one, are those countries who have a trade deficit with the US and they, more or less, remain at the baseline 10 per cent rate.
The second are the eight countries who have negotiated some kind of an agreement with the US and those tariffs range from 10 per cent to 20 per cent.
The third are those countries who have not been able to reach an agreement with the US or have not ‘tried’ to negotiate. These, roughly 60 countries, are facing tariffs that run the gamut from 15 per cent to up to 50 per cent. These tariffs have been applied to both small (e.g. Myanmar at 40 per cent) and large (e.g. Canada at 35 per cent) trading partners.
Many South Australian exporters will continue to feel the pain of the 10 per cent ‘Liberation Day’ tariffs and competing with American firms not paying the import tax.
They will also be concerned about the justification for some of the tariffs. President Trump has linked the Brazilian tariffs to its prosecution of former President Bolsonaro. The higher Canadian tariffs have been linked to Canada’s recognition of a Palestinian state. We could be targeted next.
South Australian companies not exporting to the US should also be worried by Friday’s announcement. They will need to compete in markets, both in and outside Australia, with likely growing number of foreign companies trying to avoid the now higher US tariffs by selling in countries other than the US.
There is now an even higher risk that South Australians will need to compete in Australia with foreign goods that have been ‘dumped’ – sold here below the price at which they are sold in the exporting country.
Affected South Australians can take some comfort that Trump’s tariffs are being challenged in the courts.
In May, the US Court of International Trade and the US District Court for Washington DC separately concluded that US law provides no authority for President Trump to impose the ‘Liberation Day’ tariffs.
The President relied on the US’ trade deficits (the difference between imports and exports) and a provision in the International Emergency Economic Powers Act enabling him to regulate international commerce in a ‘national emergency.’ The Courts concluded that the deficits did not create such an emergency. The ‘Liberation Day’ tariffs are, therefore, unauthorized, as too are the higher tariffs announced on Friday.
While the tariffs will remain as President Trump appeals the US court decisions, no doubt all the way to the Supreme Court, a final decision may not come before the end of the year.
While President Trump’s tariffs create challenges for some South Australians, others will enjoy the opportunity to compete in the US with other imports that face a higher tariff rate. This change in costs vis a vis the US by making it a more attractive place to invest.
Indeed, recent modelling from the Centre of Policy Studies at Victoria University, shows that Australia’s lower tariff rate compared to its competitors could add 2 per cent to investment levels and up to 0.3 percentage points to GDP growth.
Some specific sectors in South Australia are particularly well situated for potential gains. Food and wine account for about 38 per cent of South Australia’s goods exports to the US. Other major competitors to that market include countries in the EU, who now face a 15 per cent tariff, New Zealand who is also at 15 per cent and South Africa who is facing 30 per cent tariffs. This should give SA wine growers a pricing edge.
Our major competitor in the market for beef, Brazil, is facing tariffs of up to 50 per cent. Strong continued demand for imported beef in the US is expected as they deal with their own drought conditions.
Pharmaceuticals have featured heavily in SA exports to the US in the past but have fallen off in recent years. However, with the changing landscape of major exporters to that market, namely the EU and Switzerland, it might be an opportunity for South Australia businesses to relook at the US market.
There might be a similar opportunity for South Australia’s mineral resource companies who, until now, have exported only lead in significant quantities to the US.
There will also be opportunities to expand outside these sectors and beyond the US. The Australian government has pledged $50 million to support industry bodies identify new export markets for Australian companies and a further $1 billion in interest free loans.
While highlighting the need to build on current strengths in mineral markets, they also point to opportunities in defence, space, tourisms and renewables and clean technology.
AUKUS may provide such an opportunity. The South Australian government has targeted the US market for South Australian exports in space and aircraft. This may be a nonstarter if the Trump administration hits these markets with additional tariffs.
Current investigations under section 232 of the Trade Expansion Act (which authorises tariffs on imports that threaten national security) will conclude in the coming weeks. If they follow a similar route of previous sections 232 tariffs, that is, to copper, steel and aluminium, these tariffs could range anywhere from 25 per cent to 50 per cent. If so, it may be better for South Australians to look to opportunities in Southeast Asia who might be looking for a reliable local partner who isn’t China.
Regardless of what happens with the US tariffs, South Australian businesses should still be looking to expand markets overseas. Trade brings major benefits to the Australian economy and working with other trade partners who believe in a stable, transparent, rules-based system will ensure those benefits continue to be realised.
Dr Susan Stone is Credit Union SA Chair of Economics at the University of South Australia.
Nick Gallus is Principal at LK Law, teaches International Trade Law at Adelaide University, and has been counsel in Free Trade Agreement negotiations and WTO disputes.