Donald Trump loves a one-liner, and saying "tariff" is the "most beautiful word" in the dictionary has become a go-to for the United States's president.
He turned to tariffs in his first term, and he says he's using them again in his second to get a better deal from countries the US does business with.
Canada was one of Trump's early tariff targets, and tit-for-tat retaliatory measures on both sides have escalated into an all-out trade war, which outgoing Prime Minister Justin Trudeau sees lasting for the "foreseeable future".
China, which has also been hit with new tariffs, responded with a warning that it's ready for "a tariff war, a trade war or any other type of war", which it will "fight till the end".
Now, Australia is in the firing line. It faces tariffs on aluminium and steel exports, a significant hit to Australian manufacturers.
Trump rejects Australia's bid for tariff exemptions
Photo shows Trump holds up the executive order while his commerce secretary stands behind him with a grin
The US is placing 25 per cent tariffs on all imported aluminium and steel, and Anthony Albanese's request for an exemption has been rejected.
Trump "considered it, and considered against it," White House spokeswoman Karoline Leavitt told the ABC just hours before the tariffs take effect at 3pm Wednesday, AEDT. "There will be no exemptions."
Analysts say Trump's tariffs mark a "turning point" in the way the US goes about global trade, while warning there is likely more tariff news to come from the White House.
What are tariffs?
A tariff is a tax paid when goods are sent from one country into another. They are a tax on imports.
Here is a very simple example.
Country A is exporting a product to Country B for a price of $100.
Country B has a 10 per cent tariff in place that would apply to the trade.
When the product arrives at Country B, the company importing the product must pay $110 — that's $100 for the price of the item, and $10 in tax.
The Trump administration is planning more tariffs on imports. (Reuters: Carlos Barria)
Former US trade negotiator Wendy Cutler, now vice-president at the Asia Society Policy Institute, says that cost increase is often — but not always — passed on to the consumer.
"While President Trump keeps saying that the foreign country pays the tariff, that's not correct," Ms Cutler said.
"Who pays for that $10 in increased cost? The importer does.
"And then the question is: does the importer then pass on some of those costs to the consumer? Or does it then squeeze its customer overseas and say, 'we need you to cut costs and to sell us this product at a lower rate'?"
Most economists warn tariffs will push up prices for American consumers. The tariffs on Canada, Mexico and China will cost the typical household more than $US1,200 ($1,900) a year, according to research from the Peterson Institute for International Economics.
Donald Trump has repeatedly dismissed the idea tariffs would be inflationary. "There will be a little disturbance," he said in an address to the US Congress. "But we're OK with that. It won't be much."
What tariffs has Trump introduced?
Trump has ordered tariffs be placed on imports from certain countries, as well as imports of certain types of products.
- Chinese imports were hit with new 10 per cent tariffs on February 4, which were doubled to 20 per cent a month later. (Trump had already imposed tariffs of up to 25 per cent on Chinese imports in his first term; the new tariffs are on top of those)
- Tariffs of 25 per cent on Canadian and Mexican imports took effect on March 4. But Trump later signed an order that exempted imports that were covered by a previous trade deal
- The 25 per cent tariffs on all steel and aluminium imports — including those from Australia —took effect at 12:01am Wednesday, Washington time. Trump has threatened to double them to 50 per cent for Canadian steel and aluminium imports as part of the escalating trade war with that country
As well as targeting certain countries and the commodities of steel and aluminium, Mr Trump wants a "reciprocal" arrangement on all trade with the US, which is likely to mean many more tariffs on trade partners.
Mr Trump says the tariffs will apply to "any steel coming into the United States". (Supplied)
Under the reciprocal-tariffs plan, if foreign countries charge any kind of tax on US exports, the US could impose a similar tax on imports from that country.
That could include Australia's Goods and Services Tax (GST), though there are hopes Australia could be spared because it generally runs a significant trade deficit with the US.
"This country has been ripped off from every nation in the world, every company outside in the world, we've been ripped off at levels never seen before," Trump told a recent Fox News interview.
"And all we're going to do is get it back. We're going to get a lot of it back."
What is Donald Trump trying to achieve?
That question could be asked of many things, but when it comes to tariffs, a few objectives have been outlined by both Trump and his most senior trade advisors.
Some of them include:
- Generally, be seen to be getting a good deal for Americans
- Encouraging international companies to set up production facilities in the US, rather than just shipping their products stateside
- And in turn, increasing the manufacturing capacity of the US, in particular, the production of metals that would help build military equipment for its defence.
Tariffs on steel and aluminium imports are not completely new. In his first term, Trump announced tariffs of 10 per cent on aluminium, and 25 per cent on steel, but exempted Australia and other close trading partners.
Donald Trump's trade adviser Peter Navarro has said Australia is "killing the aluminium market". (AP: Jose Luis Magana)
Australia produces steel and aluminium domestically and then ships it to the US. But, for example, Australian company BlueScope also operates in the US, where it employs Americans to manufacture steel. This steel would not attract a tariff, because it's not imported.
So the objective here is to incentivise more of that type of investment that the US benefits from.
Additionally, Trump is using tariffs as a tool to pressure trade partners in other ways.
For example, he says tariffs on Mexican and Canadian imports are designed to push those countries to prevent illegal immigration and drug smuggling across their borders. (Canada has accused Trump of using tariffs to try to cripple its economy in a bid to make Canada the "51st state".)
Trump also argues the revenue collected from tariffs will boost America's wealth.
Anthony Albanese spoke directly to Donald Trump about a potential exemption. (X: Anthony Albanese)
The US president and his advisors have repeatedly justified placing reciprocal tariffs on all trading partners as simply being about fairness.
It is a simple argument to make — if they tax our exports, we'll tax their imports the same amount.
But Ms Cutler said America's imposition of tariffs on its trading partners was also a move away from a core belief that "tariffs are barriers and that by lowering tariffs … we can promote peace and prosperity in the world".
"So, I think this is a real tipping point in trade policy," she said.
"The United States has not announced we're exiting the World Trade Organization, but by pursuing reciprocal tariffs in many ways, we are de facto exiting the WTO because we're no longer buying into a core tenant of the multilateral trading system."
What will this mean for Australia?
When Trump first introduced a tariff on aluminium imports back in 2018, Australia negotiated an exemption after agreeing to limit its exports to the US.
But Australia "disregarded its verbal agreement", according to an executive order signed by Trump.
His top trade advisor, Peter Navarro, told the ABC: "There were many country exemptions given, not just to Australia but to many other countries, and every single country abused those exemptions."
Asked if a future carve-out was still possible for Australia, he said:
"The policy is no exemptions, no exclusions, and that will change if the president changes his policy. But there's a very good reason why 'no exemptions, no exclusions' exists as a policy.
"It's because when we were kind enough as a country to make those kind of gestures to our friends, they bit the hand that fed them, and that's not going to happen again."
Last year, Australia exported 223,000 tonnes of steel to the US, and 83,000 tonnes of aluminium.
If the tariffs have their intended effect, higher prices will reduce demand for these exports in the US, but there are so many factors at play it's hard to predict the scale of the impact.
There could also be a decrease in global demand for the raw materials used to produce steel and aluminium, as US manufacturers look for cheaper alternative materials.
Economists like Scott French, from the University of NSW, argue this is what could end up having the most detrimental effect on Australia's economy, because iron ore makes up more than a fifth of Australia's exports.
US recession threat hits market
Photo shows Donald Trump points at reporters through a doorway on Air Force One
The implications for Australia from Trump's full suite of tariffs — including those still under consideration — are expected to be much broader. The US is an important export destination for meat and other agricultural goods, and tariffs on those products could particularly hurt rural economies.
Australian companies will also feel the flow-on effects of a more uncertain global business environment, disruptions to supply chains, cost increases and foreign currency fluctuations.
A tariff-fuelled economic slowdown in China — Australia's largest trading partner — could have a particularly negative impact on demand for Australian imports, and push down commodity prices.
But tariffs could also have upsides for Australian exporters.
If Trump's reciprocal tariff regime leads to higher tariffs on other countries than Australia, that could give Australian exporters a new competitive advantage in the US.
And if other countries put retaliatory tariffs on American imports, it could increase demand for tariff-free Australian imports in those markets.