Productivity Commission Says Trump’s Tariffs Will “Redirect” Others to
Australia could benefit from redirected global capital flows in the wake of new US trade tariffs under President Donald Trump — but only if it maintains its commitment to open markets, according to the country’s Productivity Commission.
In its latest Trade and Assistance Review, the commission warned against retaliatory trade measures, noting such moves would come at a cost. Deputy Chair Alex Robson cautioned that escalation could “spiral into a broader trade war” with serious consequences for Australia and the global economy.
“Increasing our direct barriers to trade and investment, even if in retaliation, would come at a cost,” the review read.
The report also highlighted that Australia is facing its highest level of economic uncertainty since the COVID-19 pandemic. However, it noted that some of the US’ proposed trade measures could have a modest, positive effect on Australian production if the country stays on its current path.
Tariff reforms
According to the Productivity Commission, Australia is leading towards abolishing 457 tariffs in 2025.
Still, it strongly suggests that even nuisance tariffs must also go, with a total of 300 identified by the commission.
“(We believe) generate little revenue and impose high costs on business… We estimate that, in 2023-2024, the tariff regime imposed compliance costs of between AU$1.3 billion and AU$4 billion, while collecting AU$2 billion in revenue.”
The commission also illustrated the effects of abolishing tariffs, saying that this move will lead to maximizing benefits to Australian production.
“For example, if the US imposed a 10 percent tariff on all imports and Australia retaliated alongside other countries by imposing a 10 percent tariff on imports from the US, Australian GDP would be 0.14 percentage points lower than if Australia chose not to retaliate.”
In a separate analysis by Austaxpolicy, this aspect of the report was also highlighted, underlining how cheaper imports from the rest of the world, an outflow of productive capital from the US and highly tariffed economies could slightly increase Australian production.
Industry assistance
The Australian Government’s Future Made in Australia (FMIA) Act commenced in 2024, and the mining and resource industry has seen a wave of grants and support since.
“(We) found that the costs of FMIA interventions can be minimised through using alternatives or complements to domestic production. Such policy options could be explicitly considered as part of the legislated sector assessments process.”
On February 12, Australia passed the Critical Minerals Production Tax Incentive, which will provide a refundable tax credit on 10 percent of eligible costs associated with the production of critical minerals and rare earths.
“The incentives are valued at AU$7 billion over the decade,” said Federal Resources Minister…
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