We’ll know Trump’s tariff war is serious when he hits Big Macs

We will only know if Donald Trump is serious about tariffs if he pushes up the price of his beloved Big Mac.

The president’s threat to slap a 25 per cent tariff on $78 billion worth of steel and aluminium imports – including $1 billion from Australian firms – has unleashed hand-wringing about what this means for the Australian economy.

The world will know if Donald Trump really believes tariffs are beautiful if he slaps one on beef imports.Credit: AP

Focusing on this one sector ignores its relative economic unimportance, but also the threat posed by a widening tariff war and Trump’s seriousness to prosecute such a war.

In 2024, Australia exported $517 billion worth of goods. Much of that was iron ore, coal and LNG but the country also shipped $37 billion worth of non-monetary gold, $3 billion of fruits and nuts plus $1.3 billion of perfume.

The $1 billion in steel and aluminium to the United States is important, especially to those few firms and their workers directly involved in the American market. But in the grand sweep of the $2.7 trillion Australian economy, they are minor players.

We know that if one market is made more expensive, producers can seek out opportunities elsewhere. Australia has done it before.

In 2020, China banned or made it prohibitively expensive for Australian producers of barley, timber, coal, copper, lobster and wine to sell their product into that hugely lucrative market. The ban, the last of which was only lifted in December, covered $20 billion worth of products.

While clearly disruptive, the bans did not stop production.

Barley exports, for instance, increased even as local farmers were shut out of China.

Australia did not sell any barley to Saudi Arabia in the 2019-20 financial year. Of the $1.1 billion worth of barley exported that year, half went to China.

Elon Musk, US President Donald Trump, Donald Trump jnr, Mike Johnson and Robert F Kennedy jnr eat McDonald’s aboard Trump’s private plane.Credit: @DonaldJTrumpJr/X

By 2022-23, when a record $3.3 billion worth of Australian barley was shipped overseas, $1.1 billion went to Saudi Arabia alone – with none to China.

Exports to Latin America went from nothing in 2019-20 to $256 million in 2022-23. Australia accounted for 95 per cent of Mexico’s barley imports as beer producers snapped up our high-quality grain.

It was a different story for wine, however. Total exports dropped by $1 billion in the year that China banned Australian reds and whites, which accompanied a slight fall in exports to all nations.

In this case, the fall in exports pushed the wine into the domestic market which was already facing pressures from producers of other tipples (including the explosion in spirits such as gin).

The problem created by Trump’s tariffs is not for steel and aluminium – it’s the threat of a broadscale trade war. Already, the European Union and Canada are working together on their own tariffs on American imports.

Americans eat 50 billion burgers a year. A tariff on beef would push up their price.Credit: AP

Trump’s steel and aluminium tariffs will simply push up the price paid by Americans for these goods. It’s one of the reasons that the US Federal Reserve is signalling that interest rate cuts may be off the agenda this year because it knows that tariffs are inflationary.

But today’s tariffs on steel and aluminium could mean tariffs tomorrow on pharmaceuticals (one of Australia’s biggest exports to the US) and the day after that it could be tariffs on beef.

Extending tariffs to all countries produces a huge inflationary pulse into the American economy that American consumers will ultimately pay. That’s their problem.

But if nations retaliate with their own tariffs, then you end up in the situation the world found itself in the run-up to the Great Depression. That did not end well.

While Trump has spoken a big game about tariffs, he knows they can be dangerous. When he unveiled 25 per cent tariffs against Canada, he deliberately reduced the planned impost on oil.

It was an admission that if he pushed up the price Canadian oil it would hurt the motorists and industries of the Midwest. The president put political self-interest before his economic ideology.

Similarly, if Trump turns to beef imports he will have to make a choice between self-interest and his professed beliefs.

Australia last financial year sold $3.4 billion worth of beef to the US, where drought has sharply reduced the American herd. It was a 72 per cent jump on the previous year, meeting the definition of a “flood” that has been used to justify the hit to steel and aluminium.

Some of that beef ended up in the Big Macs so beloved by the US president. Beef from producers in Canada, New Zealand and Brazil also went into many of the 50 billion burgers sold across America last year.

Put a 25 per cent tariff on beef, and Trump will find the cost of those two all-Australian beef patties sharply climbing. And plenty of angry American consumers.

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