The threat of tariffs are back under Donald Trump, with his signalling to the world this week that he intends to wield them even more aggressively.
There will be no escape for Australia, with the Albanese government facing more hurdles given the extra tariffs proposed for copper and pharmaceutical exports.
The US President is re-engaging on trade policy in a major way, and is brimming with confidence following the passage of his “Big Beautiful Bill” and his intervention in the Middle East to end the 12-day war between Israel and Iran.
Reviving his threat to lift reciprocal tariff rates from a new deadline of August 1, Trump is also broadening their scope by floating high specific rates of 50 and 200 per cent for copper and pharmaceuticals respectively.
This must be seen as a framework for negotiation, designed to give Washington maximum leverage to cut deals.
The 200 per cent tariff on pharmaceuticals is phony and unsustainable, just like the 145 per cent tariff on China was.
It is designed to be reduced through a process of negotiation. If implemented, it would increase production costs, disrupt supply chains and see American consumers paying more for medicines.
Australian medicines would not go up – but the combination of low negotiated prices under the Pharmaceutical Benefits Scheme and the increased costs of doing business for pharmaceutical companies would likely make Australia a less attractive market for overseas drug manufacturers.
Anthony Albanese has made clear he will never submit to pressure from the Trump administration to overhaul the PBS, and he is correct in this.
Responding to the news, Jim Chalmers said the targeting of pharmaceuticals by Trump was “very concerning” and the government was “urgently seeking” more detail.
This comment reflects a new reality – the real scope for the government in striking trade deals lies not in reducing or removing the general 10 per cent tariff that applies to Australia. This rate is here to stay and it is the lowest rate applied by the Trump administration to any country.
The new test will be in negotiating exemptions and deals from sector-specific tariffs, including the 50 per cent rates on steel and aluminium and the proposed 200 per cent rate on pharmaceuticals.
This is where Australian diplomacy will be challenged. Any failure to reduce sector-specific tariffs will also be compounded if other nations begin striking deals and Canberra gets left behind.
Yet there is some room to move. There is currently a report before government into the Health Technology Assessment system – the process by which drugs are placed on the PBS – which contains about 50 recommendations.
Industry sources suggested to The Australia that these proposals, if implemented, would improve the PBS and address some concerns raised by the US pharmaceutical industry.
Australia also has a pharmaceutical trade deficit with the US. In 2024, the nation exported around $2.2bn in pharmaceutical products to the US while importing $4bn.
Finally, the way in which Trump unveiled his new tariff threat this week should be of great concern to Australia.
The first two countries he targeted were major US allies in the Pacific – South Korea and Japan. This sends a message to Australia that being a trusted US partner will not provide protection from punitive trade measures.
Trump is redefining the nexus between security and trade policy, and showing no hesitation in harnessing America’s economic clout to intimidate some of its most important strategic partners.
The glimmer of hope is that the new August 1 deadline for reciprocal tariffs suggests the end goal of the administration is negotiation and deal-making.
Trump extended the deadline for higher reciprocal tariff rates from July 9 because Treasury Secretary Scott Bessent persuaded him he could get more deals done with more time up his sleeve.
If Australia is ever hit with a 200 per cent tariff on pharmaceutical exports, it will be seen not only as a further deterioration in the relationship with Washington but as a stunning failure of creative diplomacy.
More Coverage
Packed government bench seeks an effective agenda
The August productivity roundtable has potential to open the way to greater prosperity. After much neo-Keynesian government intervention, redistribution and regulation in Labor’s first term, some supply-side thinking would enhance our future.
Japanese election harms region
‘Japan First’ isolationism is on the march, just as the country’s role in helping deter China in the East and South China seas has never been as important.