Australia’s GST a red rag to Trump’s bullish tariff attack

Australia faces being dragged into Donald Trump’s widening trade war even if it escapes punitive tariffs after the US president signalled an assault against taxes such as the GST and domestic protections on everything from TV content rules to regulations on foreign ownership of property.

In a move that threatens to unravel 80 years of trade liberalisation and reignite global inflationary pressures, Trump said his administration would impose reciprocal tariffs within weeks on nations that had tariffs on American imports.

Crop and livestock producer Sam Kelly is uncertain how tariffs will affect him, but his main focus is the weather as he gets ready to sow his winter crops.Credit: Martin Ollman.

Trump’s “Fair and Reciprocal Plan” includes targeting value-added taxes that all developed nations bar the United States impose on the sale of all goods and services within their jurisdictions.

Australia’s 10 per cent GST, which in 2017 was extended to digital products such as US-Netflix and to low-value imports that had traditionally been excluded from the GST system, is low by international standards with nations such as Britain imposing a similar tax at 20 per cent. But it is worth more than $90 billion a year with the revenue shared among the states and territories.

While Australia, under its free-trade agreement with the United States, does not impose tariffs on US goods, the government has a string of regulatory measures in areas such as real estate and local content provisions for television. The US has also expressed ongoing concern about Australia’s Pharmaceutical Benefits Scheme.

Capital Economics estimated under the broad range of proposals, the average effective tariff rate on American imports would jump from 3 per cent to about 20 per cent, driving up US consumer prices by 2 per cent.

Trump said unfair trade practices from “friends and foes” had left America with a huge trade deficit that had to be closed.

Prime Minister Anthony Albanese, who earlier this week spoke to Trump about his plan to impose 25 per cent tariffs on aluminium and steel imports, said Australia’s trade relationship with the US was different than most other nations.

“We know that the US has a trade surplus with Australia. We have zero tariffs of any US goods into Australia, and Australian steel is making a positive difference to the US economy by putting roofs on houses,” he said while visiting BlueScope steel.

Opposition Leader Peter Dutton accused Albanese of “dropping the ball” on the trade relationship between the two nations.

Economist Nicki Hutley says shoppers at Walmart and Costco will bear the brunt of Trump’s tariff plans.Credit: Eamon Gallagher

“There is a deal, I’m sure, to be done with the United States and there is a lot Australia has to offer, but it’s wrong that these tariffs are in place,” he said.

Asked if the Morrison-era Coalition government had broken a promise to Trump to rein in aluminium exports to the US, Dutton had a one-word answer: “No.”

Independent economist Nicki Hutley said while Australia, with a trade surplus and a low GST, was unlikely to be targeted by Trump in the initial stages of his latest protectionist actions, the global economy would eventually suffer.

“The people who are going to be hit first are those standing in line at Walmart or Costco as their prices go up,” she said.

“Trump may only be in office for four years, but there’s a lot of economic damage that can be done in that time.”

But University of Western Australia economist Jakob Madsen argued the introduction of tariffs could be an advantage to the US and manufacturing jobs in general, as long as they did not lead to a permanent increase in inflation.

“Ending tariffs certainly killed manufacturing here, and we’ve relied on mining and agriculture while manufacturing advances are where you get real productivity improvements,” he said.

The nation’s farmers are increasingly worried about Trump’s next actions, with concerns the American lamb market – worth $1.2 billion to Australian farmers – could be hit next.

The American Sheep Industry Association has renewed its calls for a 21 per cent tariff on Australian imports.

Australian Farm Institute executive director Katie McRobert said Australian farmers, who generate about 70 per cent of the agriculture sector’s value via exports, will feel the pinch from geopolitical chaos long before any specific tariffs or taxes are applied by the US.

“It’s not necessarily the percentage of the tariff or where it will be applied that is the biggest concern for Australian farmers, it’s the complete lack of clarity on how these things may impact you,” McRobert said.

Crop and livestock producer Sam Kelly, of Bowning in NSW’s Southern Tablelands, is aware of the damage geopolitics can wreak on farmers but his immediate focus is on the weather as he gets ready to sow his winter crops, among them canola.

“It’s probably jumping the gun a bit assuming there will be big disruptions in terms of tariff, it’s really hard to tell what’s going to happen,” he said.

“If all of a sudden there’s a huge 25 per cent tariff on everything coming out of China into the US, obviously, that’s going to have a big impact on us here. Is the US going to be more targeted towards products that can be produced in the US? Or is it going to be a blanket across the board?”

Rabobank head of agricultural commodities Stefan Vogel said the situation was so volatile farmers might even discover their crops would be slapped with import fees as it heads to the US.

“The bad surprise could [be] more or less overnight where those who have products on a cargo ship or on a plane and you basically figure out on the way that you have to pay a duty,” Vogel said. “If you’re the one who needs to ensure custom clearance and pay for the duties, that it will be a very bad surprise.”

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