The global economy has been upended by the shock of new American tariffs. In January, US President Trump announced an “America First Trade Policy”, which aimed to rebuild domestic strategic industries while correcting so-called ‘unfair’ trade relationships with key partners.
In the nine months since, the US government has steadily unveiled a suite of new trade and tariff barriers. These announcements have wreaked havoc in global financial markets, while partner governments have scrambled to negotiate exemptions and reductions. Uncertainty abounds, with policy announcements being made, changed and unmade at a rapid rate.
In Australia, much of the focus has been on how US tariffs will affect our local industry. Of particular concern are our metals and pharmaceutical manufacturers, both of which now face potentially very steep tariffs into one of their most important export markets.
But the impacts on Australian industry are much broader than just for our exporters. Imports have been affected as the sudden erection of US tariffs have disrupted the normal flow of supply chains. Policy uncertainty has also weakened investor confidence in affected global industries, with the consequences flowing down to Australia.
To understand the scope and scale of these impacts, the Australian Industry Group commissioned our first Trade & Supply Chains Survey in August this year. Taken around six months after the start of the Trump Presidency, it surveyed Australian industrial businesses on the initial effects of US tariffs so far.
This research note utilises this survey data to unpack how Australian industry has been impacted so far, and what impacts are on the horizon. It finds the effects of US tariffs are likely to be broader than initially expected – not only affecting our exports to the US, but also our imports, the performance of our supply chains, and the commercial environment in which industry operates.
Since the commencement of the second Trump Presidency in January, the US government has announced a slew of tariffs and other trade barriers. Some were intended to protect American industry from imported products, while others aimed to lower US trade deficits with major partners.
The chart below provides a timeline of the tariffs officially announced by the US government, with the main elements including:
A further nine “Section 232” investigations by the US Department of Commerce have also been announced to consider whether tariffs should be applied to copper, timber, semiconductors, heavy trucks, critical minerals, polysilicon, drones and wind turbines.
The impact of these new tariffs on the global economy will be profound. The US is the world’s largest goods market, with its $3.3 trillion of imports in 2024 accounting for around a sixth of the global total. When their effects are combined, the announced policies will raise the average tariff applied to exports to the US eight-fold, from 2.4% to 18.6%.
When compared to our peers, Australia has come off rather lightly. As Australia runs a trade deficit with the US, we have been spared the very high reciprocal tariffs or the need to negotiate for a lower tariff deal. Australian exporters only have to contend with the 10% baseline tariff, or any product-specific tariffs relevant to their exports. This is one of the lowest overall impacts experienced by any major economy.
However, this does not mean Australia will be immune to the effects of US tariffs. A deeper dive into their emerging effects shows that our exports, imports, investment and supply chains are all showing signs of strain.
Most of our public discussion regarding US tariffs focus on the direct risk to the Australian economy – those industries which export to the US and now face potentially steep tariffs.
Overall, Australia exports around $20 billion to the US annually, accounting for 4.0% of our exports and 0.8% of GDP. These exports will now all face at minimum the 10% baseline tariff, with higher rates for those affected by one of the product-specific tariffs. Treasury analysis suggests the overall impact on the Australian economy will only be slight – reducing GDP by 0.1% in 2025 and 0.2% in 2026.
But for the affected industries, the impact will be anything but slight. Australia’s exports to the US are dominated by advanced manufacturing products: elaborately transformed metals, machinery, chemicals and consumer goods. These account for just over half of Australia’s exports to the US. They are also highly reliant on the US market, which accounts for around a third to half of their exports.
This reveals the impact of US tariffs on Australian exports will be deep-but-narrow and focused on advanced manufacturing. Very few other industries have significant US exports, and none rely on the US market for such a large share of their export sales. While the overall impact on the Australian economy may be mild, advanced manufacturers will feel a much larger burden.
Alongside the direct impact on our exports, there are also a range of indirect disruptions being felt on the import side of the trade ledger. This is due to disruptions which the US tariffs impose on the normal operation of global industries. As firms adjust their trade activities around the new US tariffs, this creates complex changes in supply chains which can produce secondary knock-on effects.
Two such import risks are apparent:
Perhaps surprisingly, it is these import effects which are currently being most acutely felt by Australian industry. Data collected in our Trade & Supply Chains Survey shows that in August some 53% of industrial businesses were experiencing some form of import disruption connected to the US trade shock. This is more than the 42% of industrials who reported export disruptions – indicating the effects on the import side are broader than those for exports.
These import effects are complex and bi-directional. Of those reporting impacts, around two-thirds indicated that supply chains were disrupted, resulting in constrained import volumes and rising prices. A third reported the opposite – increased supply and falling prices – consistent with trade diversion. This reflects the complex effects of US tariffs on different products: for some it has disrupted supply chains and made markets tighter, for others it has led to surplus capacity and loosened markets.
Given the scale and severity of the US trade disruption, it is unsurprising that global supply chain performance has deteriorated. Since the pandemic, we have periodically surveyed industrials on the performance of their supply chains to identify the extent of disruptions. The data shows that the US trade policy shock has reversed an improvement trend in Australia’s supply chain resilience.
During the pandemic, global supply chains were badly interrupted due to border closures, supply shocks and shipping issues. At their peak in late 2022, 79% of Australian industrials reported active supply chain disruptions were impacting their business. As the pandemic-era issues resolved this fell to 35% by late 2024.
However, this improvement trend has unfortunately reversed in 2025. In August this year, 47% of industrials were reporting active disruptions, a 12-point increase on ten months prior. While this remains below the peak rate seen during the pandemic, it is clear evidence that supply chain performance is deteriorating again.
Given this survey was administered only four months after the initial US tariff announcements, it is very likely this rate will continue to rise. Depending on the industry in question, the impact of tariffs can take between three to twelve months to fully flow through the supply chain. The impact of already in-force US tariffs will not become fully apparent until early 2026, with any further tariffs still to be announced lagging after that.
Beyond the impacts on trade flows themselves, US tariffs are also carrying broader impacts on the commercial environment for Australian industry.
One of the problems is investment uncertainty. This is due to the instability of US trade policy settings, which have changed rapidly over the last nine months with more changes to come. This uncertainty has seen affected firms around the world delay decisions until there is greater clarity over final tariff rates. This produces a drop in industrial investment and new orders as firms hold back.
Another problem is increased compliance burden where US tariffs impose greater compliance requirements on trade. One example is the metals tariffs, which apply to both steel and aluminium and their derivative products. These rules require exporters of otherwise unrelated products to complete detailed customs declarations regarding the steel and aluminium content of their exports.
Indeed, it is these broader environmental impacts which are having the greatest impact on Australian industry. In August, some 44% of Australian industrials were reporting that investment uncertainty was inhibiting orders, making it the most reported impact of the US trade shock. Another 33% reported an increased compliance burden associated with new trade rules, the third highest reported impact.
This data reveals the effect of US tariffs on Australian industry is very broad. By having a chilling effect on the commercial environmental in global industries, US tariffs are producing complex knock-on effects that suppress investment and activity across the supply chain. While more subtle than the direct impact of having to face a tariff, it is this environmental effect which is having the broadest impact on Australian industry.
This data points to the early effects – those occurring within the first six months – of US tariffs on Australian industry. Unfortunately, there is every reason to think these effects are likely to grow stronger before they dissipate.
First, disruptions are likely to mount as the effect of US tariffs slowly work through global supply chains. A quarter of importers, and a third of exports, indicate they are not yet impacted but expect impacts to land over the next year. Overall, this suggests around three quarters of our industrial businesses will eventually experience some effect from the US tariffs.
Second, there are more US tariff announcements to come. There remain nine active s232 investigations to be completed, each of which is likely to lead to more product-specific tariffs. Nor is the Trump Administration yet to conclude reciprocal negotiations with most countries, most importantly with China, which will determine the ultimate level of tariffs.
Third, uncertainty will cast a long shadow. Investment is a leading indicator of economic activity, with suppressed investment today having a lagged effect on orders, sales and employment that can last for months to years. Even once tariffs are finally set, it will take some time.
All of this points to the broad and long-lasting effects which US tariffs will have on Australian industry and our economy more broadly. Industry and policymakers should prepare to adapt for a long period of disruption ahead.
Jeffrey Wilson is Head of Research and Economics at the Australian Industry Group.
He leads our economics team and provides strategic direction in developing the research program to support our advocacy, service delivery and policy activities.
Dr Wilson specialises in international economic policy, with a focus on how trade and investment shape the Australian business environment.
