Free trade agreements are supposed to remove trade barriers and create mutually beneficial economic relationships, but according to experts, the 2005 Australia-US Free Trade Agreement (AUSFTA) has done the opposite. As reported by ABC News, the deal has resulted in trade imbalances, financial losses for Australia, and restrictions that favor US corporations.
Now, with Donald Trump imposing new tariffs on Australian exports, questions are being raised about whether the entire concept of free trade is flawed, especially when agreements can be ignored or weaponized at any moment.
Australia’s One-Sided Trade Deficit with the US
When the AUSFTA was signed in 2005, Australian leaders promoted it as a breakthrough in trade relations with the US. However, the very next year, Australian exports to the US declined while US imports increased, worsening Australia’s trade deficit.
The International Monetary Fund (IMF) later estimated that the agreement was costing Australia over $5 billion per year. Trade specialists argued that instead of expanding trade and lowering costs, the agreement restricted competition and favored American companies.
Shiro Armstrong from the Crawford School of Public Policy criticized the deal, stating:
“When the Howard government was negotiating AUSFTA, observers raised serious concerns about whether it would distort trade and impose costs on the Australian community rather than expand and lower the costs of trade.”
More than a decade later, the concerns proved valid. Studies showed that both Australia and the US were worse off economically than if they had never signed the agreement, with Australia taking the bigger hit.
How the Agreement Gave America the Upper Hand
The AUSFTA not only affected trade flows but also weakened Australia’s control over key industries, particularly pharmaceuticals and intellectual property.
One of the most controversial parts of the agreement was American influence over the Pharmaceutical Benefits Scheme (PBS). Before the deal, Australia had the power to negotiate drug prices to ensure affordable medicines for its citizens. However, during negotiations, US representatives pushed to weaken these controls, giving American pharmaceutical companies more power over pricing.
Thomas Faunce from the Australian National University explained the impact:
“The PBS process of reference pricing was considerably disrupted by the Australia-US Free Trade Agreement.”
This led to a two-tiered PBS system, which limited Australia’s ability to negotiate lower prices and contributed to higher costs for medications.
Intellectual property rights were another major win for America. Under AUSFTA, copyright protections were extended to 70 years, granting US companies longer control over their patents and limiting Australian access to cheaper, locally produced alternatives.
Trump’s Tariffs and the Reality of ‘Free Trade’
Despite the AUSFTA being in place, the US recently imposed tariffs on Australian steel and aluminum, proving that these agreements offer no real protection when political or economic interests shift.
Trump’s decision to impose tariffs contradicts the very idea of free trade, leading many experts to question whether such agreements hold any real value. If one party can simply override the agreement when it suits them, what purpose do these deals actually serve?
This situation is not unique to Australia. China has also ignored its free trade commitments when it suited its own interests. When tensions rose between Beijing and Canberra, China blocked Australian exports like wine and timber, despite both countries being part of a much-vaunted free trade agreement.
Tim Harcourt, a former Austrade chief economist, summed it up:
“I guess it was a sign of things to come with China under Xi and the USA under Trump in using trade and tariffs as a geopolitical weapon.”
Is It Time for Australia to Reconsider Its Trade Deals?
With the US continuing to enjoy a trade surplus with Australia while imposing new barriers on imports, there is growing debate about whether Australia should renegotiate or abandon parts of AUSFTA.
So far, Australia has chosen to avoid retaliation, but as protectionist policies gain traction globally, experts argue that it may be time for the country to reassess its trade relationships to prevent further economic disadvantages.
