Is Trump about to double Australia's tariff?

Australia Broadcast Center

2 days ago

Sam Hawley: Donald Trump's latest trade deal with the European Union is said to be really bad for Europe. So why did the EU agree to a 15% tariff on almost all goods entering the United States? And does it signal a troubled road ahead for us? Today, the ABC's chief business correspondent, Ian Verrender, on where all the Trump trade mess is up to. I'm Sam Hawley on Gadigal land in Sydney. This is ABC News Daily.
Sam Hawley: Ian, we're going to have a look where we're up to when it comes to Donald Trump's tariffs, because let's face it, it's pretty hard to keep track of what he's doing, isn't it?
Ian Verrender: It certainly is, it's a movable feast, Sam. I mean, you just don't know from one day to the next what he's got planned, and it seems as though he doesn't know either. And it was interesting the other day when he mentioned that the tariffs, the lower bound tariffs, instead of 10% was going to be 15 or 20, he didn't seem to know whether it would be 15 or 20.
Donald Trump, US President: We have, you know, you have 200 countries, more, but people don't know that, a lot of countries. And I wouldn't want to sit down with 200 people. We're going to be setting a tariff for essentially the rest of the world. I would say it'll be somewhere in the 15 to 20% range.
Reporter: So maybe 15 or 20 or...
Donald Trump, US President: No, I said, you know, I sort of know, I just want to be nice. I would say in the range of 15 to 20%.
Sam Hawley: Well, those comments did get people a little worried, I suppose you can say here. But look, let's talk first about the deal he's done this week with the European Union. And from all accounts, this is a really bad deal for Europe, not for the United States. So just tell me about that.
Ian Verrender: Well, it fits with the, I guess, the modus operandi that he's employed with pretty much all of these negotiations, which is to threaten something really catastrophic and then just kind of ratchet it back to really bad and everybody feels much better.
News report: The agreement will see a 15% US tariff placed on most EU goods. That's half of the rate the US president had threatened.
News report: And it's agreed to buy $750 billion worth of energy from the US. The EU will open its market to American products free of any tariffs.
Ian Verrender: So with Europe, I mean, France described it as a dark day for Europe and saying that, you know, the EU had caved in for an unbalanced deal. Germany said that it would suffer significant damage as a result of the deal. So no one's very happy about it. Why? Well, I guess everybody, you know, thought about it. Do we really want to get involved in a protracted argument with a country led by someone who doesn't seem to be overly fond of the use of logic and is just hell-bent on going down this path of protectionism and tariffs? It was going to get ugly and the fight would do more harm than the capitulation, I guess.
Sam Hawley: Well, the president of the European Commission, Ursula von der Leyen, she looked very unhappy, I would say, when she was sitting next to Donald Trump during a press conference after the deal was done.
Donald Trump, US President: And it's... I think you were saying this is probably the biggest deal ever reached in any capacity, trade or beyond trade.
Ursula von der Leyen, President of the European Commission: It is.
Donald Trump, US President: It's a giant deal with lots of countries.
Ursula von der Leyen, President of the European Commission: It's a huge deal. It will bring stability. It will bring predictability.
Sam Hawley: You say they don't want to have an argument with Donald Trump, but, I mean, why? I mean, I just don't get why they agreed to this if it is so bad.
Ian Verrender: Well, I guess what you've got to take into consideration is that America is still the world's biggest economy and all money flows through America. So America is the reserve currency of the whole international payment system. Everything is priced in US dollars. All commodities are priced in US dollars. All currencies are priced in US dollars. So everything is benchmarked against the US dollar. That gives America an enormous amount of leverage when it comes to these kind of trade deals and negotiations. America still holds the cards when it comes to these kind of negotiations. And do you really want to get involved in an ongoing dispute with America over trade that could last for years and that would really do enormous harm to your economy? Or do you want to capitulate for now and hope that you can strike a better deal with the next US administration?
Sam Hawley: But this could be really bad for EU companies, right? Because if the tariff is passed on to the consumer in the United States, that might mean Americans stop buying EU goods, right? They'll go for something cheaper.
Ian Verrender: Yeah, I mean, look, there's an interesting contradiction at the heart of this in America. I mean, the president has basically outlined the idea for the tariffs is that America will make a lot of money because he thinks it's going to be paid by the other countries. Clearly it's paid by American consumers. But he thinks that this is going to raise a lot of money and help plug the budget deficit that America has. But if you slap these tariffs on and you raise the price of these goods, that means one of two things. You get a lot of money coming in because of this tariff, the tax that consumers are paying, but are they going to continue buying those goods? So if the imports drop off, which is clearly another goal from Washington, your cashflow is going to be diminished. And he's banking on the idea that American companies will then fill the breach and make these goods for American consumers. That could take years.
Sam Hawley: Well, Ian, let's then consider what this might mean for us. As you mentioned, Donald Trump is now threatening 15% to 20% tariffs. He's landed at 15% with the EU. He's done a deal as well with Japan, also 15%. Does any of that bode very well for us? Because he seems to like that number.
Ian Verrender: It's... Look, the thing is, Australia runs up a trade deficit with America. America has a surplus with Australia. So on the president's logic, we should be charging tariffs against America, not the other way around, because his idea is that if you've got a trade surplus with another country, they're ripping you off, which is not the case at all. I don't think he probably will go to that 15% to 20%. But then he did say, I would say 15% or 20%. I mean, if he's charged 15% tariffs against Japan and against Europe, which America does have trade deficits with both of those countries, and large ones in some cases, why would you impose the same penalty against a country that you don't have a trade problem with? I mean, you know, America makes money out of Australia. They have a surplus with Australia. The one time, the one time that America hasn't had a trade surplus with Australia, that has been the other way around, has been the past year. And interestingly, it's because of the threat of tariffs from Donald Trump. So for the first time in 20 years, since we signed the free trade agreement with America, Australia racked up a surplus with the US, and that was because American consumers and manufacturers rushed to import Australian gold before the tariffs were actually imposed, before they were negotiated. They wanted to get as much in the country as they possibly could. They were front running, essentially, the imposition of tariffs. So all of those gold exports from Australia and into America saw us rack up a trade surplus for the first time in 20 years. So, you know, unintended consequences.
Sam Hawley: And the thing is as well, Ian, we have actually been doing some things, haven't we, to make Donald Trump really happy, including lifting this really long time restriction on allowing US beef to be imported into Australia. So could he stick with the 10% base rate for tariffs that he has threatened so far, and that I guess we assume is coming?
Ian Verrender: Well, if he imposes 15 to 20%, as opposed to the 10, it would be a major slap to Australia. And, you know, we've been a fairly loyal ally to the US. And as you say, we look as though we've capitulated on beef, but I think that those biosecurity concerns were under investigation for a very, very long time before that decision was taken. It's quite handy that it clearly, that it was taken right now. I mean, if you just want to look at that decision though, will we be importing American beef here, do you reckon?
Sam Hawley: We have a fair bit, don't we?
Ian Verrender: Well, here's how trade works. So one country produces a whole lot of stuff more than it needs, and another country needs something because it doesn't produce enough of it. So they buy from the country that's got a lot more than it needs. In our case, we produce huge amounts of beef we're one of the world's biggest exporters. America doesn't produce enough to feed itself. So it buys from elsewhere in the world. It buys from Australia. Why would we want to be buying American beef? It's unlikely. But anyway, it seems to have been a real bug in Donald Trump's hat. And he's wanted this, and so we've delivered, but I don't think it's ever going to come to much.
Sam Hawley: What about pharmaceuticals though? Because that's a bit of a worry. He has flagged a massive 200% tariff on pharmaceuticals.
Donald Trump, US President: We give people about a year, a year and a half to come in, and after that, they're going to be tariffed if they have to bring the pharmaceuticals into the country, the drugs and other things into the country, they're going to be tariffed at a very, very high rate, like 200%.
Sam Hawley: And that's one of our biggest export markets to the United States, isn't it?
Ian Verrender: It is. CSL, which used to be the Commonwealth Serum Laboratory, it was a government-owned entity for a very long period of time. It's now one of the country's biggest companies and globally a real success. It's essentially one of its big exports and one of its big products is plasma. But it doesn't just produce it in Australia. CSL is a global company. It has operations in Switzerland, in Germany, in America, in Australia. It's a global company that operates. So I guess what they're going to have to do is figure out what's the best way that they can export into America. But yeah, this is going to be a problem for Australia. It's also going to be a problem for American health. I mean, this is a very specialised area that CSL operates in. And if you're going to whack tariffs onto this, it's going to result possibly in shortages for Americans and higher prices.
Sam Hawley: Well, Ian, when are we going to know the answer to all of this? Because Anthony Albanese, he hasn't even had a face-to-face meeting with Donald Trump yet, has he?
Ian Verrender: I don't know that it'd really matter, would it? I mean, you know, the face-to-face meetings seem to be every bit as chaotic.
Sam Hawley: They're a little tricky.
Ian Verrender: They are. And look, I guess August 1 is the deadline. So we're really just not very far off a decision on all of this for Donald Trump to raise the lowest tariff rate from 10% to, say, 20% would involve him having to issue another executive order to that effect, because I'm pretty sure the executive order was that the base rate for tariffs would be 10%. So he would have to rescind the executive order that's in place at the moment and put in place another one. So he's running out of time to do that. But of course, anything can happen. I mean, he continually extends deadlines, makes new deadlines. Nobody seems to know exactly what he's doing. And, you know, I really do think that he's not particularly sure either.
Sam Hawley: Mm. And what about, Ian, when he's gone, do these tariffs just stay in place? Is the world then stuck with them?
Ian Verrender: I mean, if they come in at around that 10% level, they probably will be, to be honest. You know, the tariffs that Donald Trump imposed, particularly against China in his first term, the Biden administration kept those on. I think there's probably... You can mount a logical case about having some kind of protection against China in the way that China did flout the laws or the rules around the World Trade Organisation and its trade policies. So it's one thing to have them, though, against one country that you think has perhaps done the wrong thing in a lot of trade things. It's a separate idea altogether to just impose them globally on everybody, regardless of trade performance. So I think you might find that they'll be wound back in areas where it might be beneficial to America and possibly kept in place in the longer term where that will benefit America.
Sam Hawley: Ian Verrender is the ABC's chief business correspondent. This episode was produced by Sydney Pead. Audio production by Sam Dunn. Our supervising producer is David Coady. I'm Sam Hawley. To get in touch with the team, please email us on ABC News Daily at abc.net.au. Thanks for listening.