🍖 BBQ Bites: Tariffs

Tariff. A beautiful word. 

We’re 37 days into the new American administration and it’s been a doozy.  

The headlines are flowing so thick and so fast I’m already starting to feel exhausted, but there is one word in particular that’s been getting a lot of airtime – tariff.  

In a 2025 speech that may well go down in history alongside Thatcher’s ‘the lady’s not for turning’ and Reagan’s ‘A Time for Choosing’, Donald Trump declared ‘To me, the most beautiful word in the dictionary is tariff. It’s my favourite word. It needs a public relations firm’. 

That may be so, but for some of us, myself included, a dictionary would probably be a better first step.  

Before I could feel comfortable getting caught up any kind of outrage, I really needed to know – what the hell is a tariff? So, I put on my detective hat and hit the internet to find out.  

 

 

 

What is a tariff? 

According to Scott French, senior lecturer in Economics at the University of New South Wales ‘An import tariff – sometimes called an import duty – is simply a tax on a good or service that is imported into a country.’ 

Because tariffs make imports more expensive, economists refer to them as a trade barrier. They aren’t the only kind. 

One other common non-tariff trade barrier is an import quota – a limit on how much of a particular good can be imported into a country. 

Governments can also create other non-tariff barriers to trade. 

These include administrative or regulatory requirements, such as customs forms, labelling requirements or safety standards that differ across countries.  

Seems simple enough!  Just like the GST, a tariff is a tax that is imposed on specific goods or services that are imported from overseas.  

Economists almost unanimously agree that trade barriers have an overall negative impact on the economy, but they note the benefits of free trade are rarely shared equally.  

Many in the former auto manufacturing hubs of Victoria, South Australia and other deindustrialised towns and cities the world over tend not to share the economists’ enthusiasm. 

 

So, how does a Tariff work IRL? 

Imagine you’re a business owner in Australia, and you want to sell handcrafted Italian leather handbags. You find a great supplier in Milan, and they offer you a fantastic price – $100 per bag!

You’re excited to import these handbags and offer them to your customers. But there’s a catch!  

The Australian government has a 10% tariff on Italian leather handbags.

This means that for every handbag you import, you have to pay an extra $10 to the government. 

So, those handbags that cost you $100 in Italy now effectively cost you $110 in Australia. This makes them more expensive for you to sell, and ultimately, more expensive for your customers to buy. 

The idea is that this tariff helps protect Australian handbag makers.

By making the imported bags pricier, it gives local businesses a better chance to compete. Of course, it also means your customers likely end up paying more for their preferred Italian bags. 

This is a simplified example, but it shows the basic idea behind tariffs. They’re like a border tax that can make imported goods more expensive. 

But why would anybody want to make things more expensive? 

 

 

Why do governments implement tariffs? 

As we know, in the first instance, tariffs are designed to make imported goods more expensive, but there are a whole slew of reasons why a government might want that to happen. 

One reason is to protect domestic industries from foreign competition. When tariffs are applied tactically to raise the price of imported goods, domestic businesses can compete more effectively.  

Brazil’s recent imposition of tariffs up to 35% on various Chinese products, after a ‘significant increase in imports that harmed national production’ illustrate this method in action.  

Tariffs can also be used to influence the trade or other policies of nations.  

For example, a country might impose tariffs on goods from another country in order to pressure that country to change its trade practices, damage a competitive industry or put pressure on a foreign government. 

Australia’s 2022 imposition of a 35% additional tariff on all goods from Russia and Belarus, in response to Russia’s invasion of Ukraine, highlight how countries can use trade restrictions as a means to try influence and/or coerce fellow nations to behave in a particular way.  

 

 

Cool story, what do tariffs mean for me? 

So far, Australia has not been directly targeted as a tariff recipient. But that is no guarantee.  

Recently announced tariffs of 25% on steel and aluminium imports into the US ‘without exception’ could have a marked effect on Australia’s producers.  

But the Albanese government appears quietly confident that our status as one of the few nations globally to maintain a trade deficit with the United States (we buy more from them than they buy from us) will play in our favour.  

Further, Australia’s steel imports do not register in the top ten importing nations to the US and rank ninth for aluminium at 90,203 metric tonnes –  more than 2.8m tonnes less than Canada in first place.  

Another potential source of trouble for us, the Trump administration’s factsheet on fair and reciprocal trade takes aim at ‘unfair taxes’, specifically, value added taxes like Australia’s GST.  

While Australia is not mentioned by name, the potential is there. There is also a strong potential for flow on effects from tariffs elsewhere, namely China.  

As our largest customer, responsible for around 40% of Australia’s exports, any fluctuations in the Chinese economy are likely to be felt here as well. 

Exciting times ahead, it seems! 

 

Fun tariff facts GUARANTEED to make you look smart. 

• The word Tariff originates from the Spanish port town of Tarifa. A group of racketeers based in the town would hold up merchant ships and charge a fee to pass through the Strait of Gibraltar – which came to be known by mariners as a tariff.

• Data from 2022 suggests that Bermuda has the highest (weighted mean) tariff rate in the world at 29.5%. Hong Kong & Macau share the lowest at 0.0%. Australia ranks 7th lowest at 1%.

• Early forms of tariffs were levied in the ancient Roman city of Palmyra (now Syria) and were not charged based on the goods entering the city but on the animal carrying them, with each camel or donkey load being charged a set amount. 1x donkey’s worth of Denarius please!

 

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