04/04/2025
My beef with tariffs (pun intended)
You’ve probably heard President Trump has announced a spate of ‘reciprocal’ tariffs and may be wondering what this means for Australia.
The US is our 4th largest customer at around 6% of total exports, which is a long way behind China and Japan at at 37%, Japan at 11%, and if you exclude our most valuable exports (services - which can’t be tariffed) and look at products, beef is our biggest export to the US. So, let’s use it for the example.
Second only to Argentines, Americans eat a lot of beef – estimated at 38kg per capita. Australia provided almost a quarter of that.
Tariffs are paid by the buyer, not the seller, so at least initially US citizens are going to be paying more for beef.
The theory behind tariffs is that by increasing the cost of imported goods, local industry can be more competitive. Though history is full of examples of this not working.
The US is the world’s largest beef producer, so you’d think they could just eat more of their own, but there are problems:
1. US producers make more money exporting beef than selling it at home. So unless other countries retaliate with tariffs on US beef, expect Americans to be paying more for beef,
2. Australian beef is better in a lot of ways. This is subjective, but it’s not just my opinion: Australian beef is regarded as a premium product. Australian beef is mostly grass fed making it more nutritious (more vitamin A and E) and richer in antioxidants, more tender, more lean, and a richer flavour.
So how does all this impact Australia? In my view, not much. Here's why:
1. High global demand means Australia has no shortage of customers, particularly China, Japan, & South Korea, with China and developing Asian countries continuing to increase meat consumption dramatically,
2. US demand for Australian beef may soften, but it’s unlikely to disappear any time soon. US beef prices have been increasing since 2020 due to labour shortages and transport costs. Australian beef is currently about 45% cheaper, which a 10% tariff does little to make up for,
3. Beef represents 2% of exported goods from Australia. The big ticket exports like iron ore, coal, education, natural gas, and travel, are mostly unaffected because they’re either not exported to the US or they’re services which can’t be tariffed.
Notably, Australia charges GST on most goods imported, so a 10% US tariff is kind of ‘reciprocal’ in that sense.
In my view the real danger for Australia isn’t the direct impact of tariffs, it’s the indirect. Should Australia’s biggest customers become embroiled in a tariff war with the US to an extent that it hurts their economies, and therefore demand for Australian goods and services reduces, then we’d have more to be concerned with.
Sources:
www.abs.gov.au
www.agriculture.gov.au
www.ers.usda.gov
www.mla.com.au
www.dfat.gov.au
