Call to axe 'nuisance' levies as US tariffs wreak havoc
While President Donald Trump's tariffs are unlikely to have a significant direct impact on Australia when he lifts a pause on reciprocal levies on August 1, the uncertainty they create could wreak havoc on living standards across the globe.
Were it not for that, modelling from the Productivity Commission has found Australia could receive some benefits from US tariffs.
But the federal government's independent research and advisory body has recommended Australia mitigate impacts by committing to free trade agreements, reducing some of its own tariffs and working towards open markets - offering much-needed certainty for exporters.
Any retaliatory tariffs could escalate into a broader trade war, potentially exacerbating uncertainty, which the commission warned would bring "serious consequences".
In 2025, economic uncertainty in Australia and across the world reached its highest level since the COVID-19 pandemic.
The speed, frequency and varying scope of Mr Trump's tariffs created an environment where world trade could be transformed at any time and without warning, creating uncertainty that could slow economic activity, household consumption and investment.
Of the scenarios modelled by the commission, Australia would do better under a "Liberation Day" situation where - much like the real event - Australia's exports face only the baseline tariff of 10 per cent while other countries' goods are hit with higher rates.
Since Australian items are impacted by a lower rate, they would be comparatively cheaper, meaning American consumers would shift demand to Australia.
Lower US demand for other countries' imports would decrease their price, reducing the cost of import inputs used in Australian production.
The US tariffs would also likely lead capital to flow out of America and high-tariffed countries, benefiting other economies like Australia.
This means Liberation Day tariffs, alongside Mr Trump's levies on steel and aluminium, could lead to a 0.37 per cent increase in Australia's real gross domestic product and a 30.9 per cent increase in US demand for Australian exports.
While it is unclear whether Australia could negotiate a tariff exemption, the government could take things into its own hands by removing more of its own "nuisance" levies.
It has already abolished almost 500 of these tariffs, which impose high costs on businesses and generate little revenue, but the commission identified another 315 that could be urgently removed.
"Australia is best served by continuing to advocate for free and fair trade - and that's exactly what we've done," Treasurer Jim Chalmers said in response to the report.
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