Reduce remaining trade barriers to counter Trump tariffs, says Productivity Commission

As the US prepares to hike global tariffs, the Productivity Commission has called on the Albanese government to do the exact opposite — urging the removal of Australia’s remaining trade barriers.

Productivity Commission chair Danielle Wood. Picture: Aaron Francis

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The Albanese government’s top economic adviser has urged Labor to respond to Donald Trump’s tariff onslaught by doing the exact opposite, arguing the elimination of the nation’s remaining trade barriers could save businesses $4bn in compliance costs a year.

The Productivity Commission’s recommendation comes as the US nears finalising several new trade agreements and prepares to notify other countries of increased tariff rates from July 9, marking the end of the 90-day freeze on the US President’s “Liberation Day” levies.

But in its annual trade and assistance review, set to be released on Tuesday, the Commission calls on the government to seize fresh opportunities to cut trade barriers, warning that local tariffs cost businesses as much as double the $2bn revenue they generated.

“Removing Australia’s remaining tariffs would maximise the benefits to Australian production from other countries imposing tariffs,” the Commission said, warning that increasing Australia’s barriers to trade, even in retaliation, “would come at a cost”.

The review calls for the abolition of so-called nuisance tariffs – low-yield levies, mostly imported under trade agreements, that generate little revenue but impose significant administrative burden on business.

While Labor has already taken action to remove almost 500 nuisance tariffs, the Commission identified a further 315 “urgent priority” tariffs the government should eliminate.

Recent Commission modelling finds that removing all tariffs in Australia could grow the domestic economy by as much as $7bn, while reducing prices paid by consumers by up to 0.25 per cent.

Responding to the review, Jim Chalmers said the Commission’s findings validated Labor’s decision not to retaliate against the Trump administration’s tariffs on Australian exports.

“The key message from the PC review is that Australia is best served by continuing to advocate for free and fair trade, and that’s exactly what we’ve done,” the Treasurer said.

The report comes amid a sense of resignation among senior government figures that Australian exporters are likely to continue to face a 10 per cent “reciprocal” tariff to sell goods into the US.

Senior government figures have been told by the US that Australia won’t do any better than the baseline tariff, which will be the minimum applied to any country and would leave Australia no worse off than its trading rivals.

It’s unclear what ongoing duties Australian steel and aluminium producers will face, with metals exporters currently enduring a 50 per cent tariff for exports to the US.

Policymakers are also concerned Australia could be caught up in any wider economic fallout from the reciprocal tariff decision, with the higher rates set to take effect on August 1.

Mr Trump said he did not plan to extend his tariff pause, but major economies including the EU, Japan and India are all seeking an extension to the July 9 deadline.

The Trump administration has so far done just three deals – with the UK, China and Vietnam – but the details remain unclear and have yet to be finalised.

The Albanese government has offered the US priority access to Australia’s critical minerals but pushed back on US calls to slash the Pharmaceutical Benefits Scheme or undermine the nation’s biosecurity standards to advantage American exporters.