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Is Trump about to double Australia's tariff?
Is Trump about to double Australia's tariff?

ABC News

time30-07-2025

  • Business
  • ABC News

Is Trump about to double Australia's tariff?

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 Thanks for listening.

The Trump cloud hanging over the RBA
The Trump cloud hanging over the RBA

ABC News

time21-05-2025

  • Business
  • ABC News

The Trump cloud hanging over the RBA

Sam Hawley: Interest rates are falling, inflation is down and the Reserve Bank seems happier than it's been in ages. So have we achieved the so-called soft landing after all the economic turmoil since the pandemic? Today, Chief Business Correspondent Ian Verinder on the latest rate cut, how many more we should expect this year and why Donald Trump could still up-end it all. I'm Sam Hawley on Gadigal land in Sydney. This is ABC News Daily. News report: The Reserve Bank has cut interest rates as expected by 25 basis points, taking the cash rate down from 4.1% to 3.85%. Michele Bullock, RBA Governor: So the cautious approach we have taken has got us to this point where inflation is now below 3% and employment is holding up. But now we've got inflation down, we must keep it there while trying to maintain a healthy jobs market. So there's now a new set of challenges facing the economy. Sam Hawley: Ian, this was a rate cut we were expecting, so it's not a surprise, but it's really welcome news for a lot of people, isn't it? Ian Verrender: Yeah, absolutely. I mean, you know, we had what, 13 rate rises on the hop, but a couple of those were double rate rises. It's extraordinary that we didn't see a lot of households go under and that there weren't as many forced house sales as we would have expected. And I think that really got down to the fact that unemployment didn't really rise to the extent that everybody thought. So people maintained their jobs. And if you've got a job and you've got a big mortgage, pretty much what we've discovered over the years is that people do anything to keep that roof over their head. Sam Hawley: So the RBA has, of course, dropped rates again. Just tell me before we move on, though, some of the banks are faster at passing on this cut. So Westpac, for instance, I read, it's going to wait until June the 3rd, while Macquarie, it will pass it on by May the 23rd. So just explain that for me. What is that all about? Ian Verrender: Look, I'll tell you what, this is a much quicker pass through than we've traditionally seen. In the past, we've seen banks hold off on actually passing them through for about two to three months sometimes. And so they'll announce it and say, yes, we're putting through the rate cut, but don't expect it next week. So this is actually pretty quick. There's been a bit of a change in the dynamic in terms of competition within the banking sector. And a lot of that, I think, has to do with the fact that Macquarie has really come into that mortgage market and that consumer market and upset the big four apple cart. Sam Hawley: Oh, yes. OK. So a bit of pressure on the big four from Macquarie. Well, that's always good. All right. So, Ian, Michele Bullock, the RBA governor, says the bank actually did consider dropping rates by 50 basis points. Of course, they settled on a smaller cut. Michele Bullock, RBA Governor: There was a bit of a discussion about hold, and that was sort of put aside pretty quickly. The discussion then was about a cut and how big. And there was a discussion about 50 and 25. The board was of the view that 25 was the right number on this occasion. Sam Hawley: So why is that? How did she explain that? Ian Verrender: Look, that's a really interesting point. And if you hark back to February when the Reserve Bank made its first cut to interest rates in this cycle, it was very guarded language from Michele Bullock, the Reserve Bank governor. She was essentially saying this decision wasn't a Lay down misí¨re. It wasn't that we're all piling on and say, let's cut rates now. We argued about it. So it was a do we or don't we cut and don't expect too much in the future because we've just done this now to kind of ease the pain a little bit. This time around, it's, well, we didn't just discuss one cut. We discussed two. I mean, it was a unanimous decision to do the one, but all of that caution that was being expressed just a few months ago has been jettisoned. And it's now the discussion is, well, we're going to cut, but the only question is by how much. And then there was also a mention even in the statement about the Reserve Bank essentially modelling what might happen in the event of a severe global economic meltdown and whether or not the Reserve Bank would be able to cope with it, which they say they can. Michele Bullock, RBA Governor: If you look at our scenario analysis, it does suggest that in a really bad outcome, there could possibly be a recession. Yes. But that's in the very extreme circumstance. And again, it was to try and give ourselves some sort of spectrum of outcomes that we might be at. At the moment, we're not looking at that, but we need to be alert. Sam Hawley: And that brings us to Donald Trump in a moment. Let's not go there just yet, though. What about the unemployment rate and wage growth? What role did they play in this decision? Ian Verrender: I don't think it played a great deal at all. You know, for right through that period when we saw rate hikes, there was a lot of commentary from economists and from the business press that, you know, the labour market's too tight. What we're going to see is a blowout in wages. And it just didn't happen. And I think everybody overlooked the fact that the wages system in Australia has changed dramatically from the 70s, 80s and 90s when we did see a lot of wage blowouts because the industrial relations system now bans essentially taking action, you know, going on strike. And so the power of the unions to force through wage rises has been very much diminished. So, OK, we did see some pretty strong employment numbers and we've seen strong employment numbers right through this cycle, which has been highly unusual and almost unprecedented. So I don't think the Reserve Bank is all that concerned about the fact that there's a strong jobs market. And I think in many ways they see it as reason to celebrate. Sam Hawley: All right. But the Reserve Bank is concerned about that rather large elephant in the room. Sorry. I don't know if it's a large elephant, but anyway, there's an elephant in the room and it's Donald Trump, of course. Michele Bullock said she was actually shocked initially at just how far the US president went with his initial tariffs. Michele Bullock, RBA Governor: Us, just like everyone else, was completely blown out of the water by the scale and the scope. Sam Hawley: But how is she feeling about it now? Ian Verrender: I think they're extremely concerned. I mean, everyone seems to have, you know, wound back the fear factor, you know, "they're only going to impose 30 per cent tariffs on China. That's so good." Well, actually, it's a really big impost if it continues on. It will have a major impact on the global economy. Okay. It's a lot less than 145 per cent. But at 145 per cent, you're essentially not trading. So that's basically, you know, you've shut down trade between America and China if you have that kind of level of tariff. But at 30 per cent, I mean, you're talking about a serious inflationary boost in America. Sam Hawley: But how are these tariffs inflationary for us? Ian Verrender: Well, you know, America is the world's biggest economy. You are going to see Americans having to pay a lot more for goods that come in from China and from Mexico and Canada and everywhere else from around the world. That means Americans are going to have to pay more. America is also the centre of global money markets. This is where money is. It's the biggest player in global money markets because it is the reserve currency. And so it has an impact on interest rates worldwide. The other possible factor is that if these tariffs result in supply chain disruptions and you see that there are shortages around the world in particular goods, you're going to see price rises as a result of that. Sam Hawley: So is Michele Bullock still concerned, even though the tariffs have been dropped, as you say, to 30 per cent on China, that that is still high enough to push the global economy into recession and the Australian economy into recession? Ian Verrender: Yeah, I think so. I mean, she was, first up, as you said, she was expressing shock at the level of the tariffs that Trump imposed. I don't think she's in any way comfortable with the current situation and particularly given that it's really only a temporary freeze. The global situation is that all countries are paying 10 per cent at the moment. China's paying 30 per cent. The 10 per cent tariffs could be raised within the space of about six weeks. And China's, the freeze on the China tariffs lasts probably another two and a half months or so. So this is all very temporary and it all could blow out one more time. And one thing that I think all the commentators have overlooked, the inflationary impact from tariffs just not really talked about. And I think it's actually quite important to think about what impact that might have. And particularly given the US President Donald Trump has announced that his big, beautiful bill will incorporate a massive spend on defence with this Golden Dome. Donald Trump, US President: Once fully constructed, the Golden Dome will be capable of intercepting missiles, even if they are launched from other sides of the world and even if they are launched from space. Ian Verrender: So what you're looking at is a huge blowout in the US budget deficit. That deficit needs to be financed, which will require a lot of money needing to be raised at higher interest rates. So it's called stagflation, obviously, where you've got higher inflation and higher interest rates and lower growth, which require lower interest rates. Sam Hawley: And it's a real balancing act for the RBA, I assume, because it has no idea what Donald Trump will do next. So what does that mean for more rate cuts? Ian Verrender: I don't think Donald Trump knows what Donald Trump's going to do next, really. I'd say that's probably right. Look, what it means for more rate cuts, I think the immediate challenge is going to be slower growth. And so what the Reserve Bank is saying is, look, we've still got interest rates, official interest rates at a little under 4%, 3.85%. So that gives us plenty of ammunition at the moment to be able to cut rates to deal with any slowdown in growth. Where it could get complicated is if we get that stagflation impact globally, where you've got, lower growth, but higher inflation, what do you do then? If you raise interest rates to try and deal with the higher inflation, you kill off your growth. If you cut rates to try and boost growth, you fuel the inflation. So that's where it could get really tricky for them. But I think they're seeing at the moment that we're fairly well placed in terms of the ammunition we have to be able to deal with the growth problem. And that is probably another reason why they didn't do a double cut, because they want to keep rates in reserve. Plenty of ammunition there to be able to fight the growth battle. Sam Hawley: All right. Okay. Well, Ian, we've had now, of course, two rate cuts. The last time the cash rate was below 4% was in May 2023. It seems like a long time ago now. Anyway, but this, it all does have a flow on effect here, doesn't it? Including on house prices. Ian Verrender: Yeah, that's one of the big, I guess, issues that the Reserve Bank would also be looking at, because every time you go into a rate cutting cycle, you boost housing prices. That's one thing the Reserve Bank will be keeping a very close eye on. Michele Bullock, RBA Governor: I acknowledge that some people are worried that as interest rates come down, housing prices will rise. But other policies have really got to step up here and address what is a housing shortage. Sam Hawley: All right. Well, Ian, what do you think? How many more rate cuts should we now expect this year and how quickly could they come? Ian Verrender: I think at this stage, it's pretty reasonable to suggest that we will get two this year. That's just based on, let's forget about the international situation, forget about Donald Trump. Let's just look at the domestic economy here. We've got inflation that is now down into that target zone and particularly underlying inflation. The Reserve Bank expects that to come down into the middle of that 2 to 3 percent band. That's the sweet spot. So you can kind of say that, you know, raise the flag and go, we've beaten inflation. So that's reason enough to bring interest rates down on their own. If you also add into that the lower growth prospects, that's a doubling in the reasons why you'd want to, you know, cut interest rates. So I think it's pretty reasonable to assume we'll have two more this year and probably another two in the new year, in 2026. 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. Thanks for listening.

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