Tariffs imposed globally by the US in April 2025 have resulted in reciprocal levies by some countries, a rise in global trade tensions and growth downgrades. Australians will particularly have seen the immediate effect of the Trump administration’s tariffs on the sharemarket. But following initial losses many stocks have bounced back.
The US imposed tariffs were a key part of the Trump election campaign, but few expected the large scale and scope of what eventuated which was not widely anticipated. Initially the reason for imposing tariffs on China, Mexico and Canada was because those countries had not done enough to stop the drug fentanyl entering the US. Reasons for expanding tariffs to many other countries was to address trade imbalances with other countries, and to support US manufacturing.
A minimum of 10% tariff was imposed across the globe with higher levels based on the trade balance. All countries and territories appear to have made the list, including Australian territories, the Heard and Macquarie Islands, which are only inhabited by penguins and seals.
After a reciprocal tariff was imposed by some countries particularly of note China, the US further increased the tariff on China to 145% before exempting some goods. The European Union, Canada and others also imposed a reciprocal rate, but the Australian Government said it would not impose a tariff on US imports.
The US tariff situation has created global trade tensions, uncertainty in many sectors, and the possibility of a rise in inflation in the US and fall in economic growth globally. But what does it mean for Australia and especially for inflation and the interest rate cuts on the horizon? It is an evolving and complex scenario which is changing on an almost daily basis. We unpack some of the basics and answer some key questions to explain the potential impacts for Australia, especially in the lending sector.
What are tariffs?
A tariff is a levy imposed by a country on goods imported into their country. The tariff is collected by the government with the cost historically passed onto the importer with a higher price for the goods by the exporter. Tariffs have historically been imposed to protect domestic industries from cheap imports and especially to protect the agricultural sector. In recent times, the world has transitioned to many free trade agreements, which is seen as mutually beneficial to trading partners, in a very global economy.
What are the US Tariffs on Australia?
The US imposed a 10% tariff on Australian imports, despite that fact that Australia has what is known as a trade deficit with the US – we import more US products than we sell to the US. Aluminium, steel and beef are the hardest hit sectors as the major Australian exporters to the US.
Other industries and companies that export to the US will be impacted. But a tariff is paid by the importer who historically will add this to the cost of their products to their customers. It is up to the end consumer in the US if they are prepared to pay a higher price for Australian goods to see if there is any fall in demand.
The Trump administration has also talked about a levy on pharmaceuticals as it sees our PBS system as a trade sanction. That has not as yet eventuated.
What is the effect of China’s response to US tariffs?
China was the recipient of the highest tariff increase by the US and they immediately responded with reciprocal levies which has led to global trade tensions. China is Australia’s largest trading partner and any changes in the China economy have potential to impact Australia.
Sharemarkets reacted quickly with falls in share prices across the board. For some Australian industries, there has been an uplift of orders of their products into China as a result of the ‘tit-for-tat’ scenario.
The current US decisions are forecast to lead to a rise inflation in the US as Americans pay more for imported goods, especially many of their basic needs such as clothing, which are primarily manufactured in China. Many electronic goods including many mobile phones and components for other goods are manufactured in China. Many auto parts are manufactured in Mexico and Canada for final assembly by US auto manufacturers.
The Head of the Federal Reserve in the US, Jerome Powell, has said a rise in inflation is a possibility and that could lead to a rise in interest rates. Globally, the International Monetary Fund (IMF) has forecast a slowdown in global growth. In late April, the IMF downgraded the US growth forecast to 1.8% from 2.7% and Australia’s growth rate to 1.6% from 2.1% for 2025. In dollar figures, that is estimated to be a cost to the Australian economy of $13 billion.
The Australian dollar (AUD) is expected to rise against the US dollar (USD) which will impact the cost of goods imported into Australia from the US. On the positive side, as China introduces measures to support its economy, commodity prices for Australian exports should remain stable.
How will tariffs and trade affect interest rates?
For Australians considering taking on finance and those with variable interest rate loans, their primary concern will likely be how the trade tensions will affect the expected upcoming rate cuts. When delivering Monetary Policy decisions, the Reserve Bank (RBA) always mentions the global economic trends as a consideration in their decision.
In the current scenario with growth downgrades and shifts in the AUD, analysts and banks are reportedly still factoring in further cuts to the cash rate by the RBA. Possibly a 25 basis points cut at the May meeting and another later in the year.
Any rate cut by the RBA typically flows through to lending rates in the consumer credit and business finance markets. As mentioned above, the global tariff and trade scenario is evolving and changing. With our extensive lender base, we continue to source highly competitive interest rates on loans across our portfolio.
For quotes on consumer loans and business finance or to discuss if tariffs will impact your current loan, contact Jade Finance online or by phone 1300 000 008.
DISCLAIMER: NO LIABILITY IS ACCEPTED IF ERRORS OR MISREPRESENTATIONS ARE FOUND IN THIS ARTICLE. THE ARTICLE IS PREPARED AND PRESENTED FOR GENERAL INFORMATIVE PURPOSES AND IS NOT INTENDED TO BE THE SOLE SOURCE OF INFORMATION FOR MAKING FINANCIAL DECISIONS. THOSE REQUIRING GUIDANCE AND ADVICE SHOULD CONSULT A FINANCIAL ADVISOR.
