The escalating trade war between the United States and its major trading partners is sending shockwaves through the global economy, with consequences that could extend far beyond the countries directly involved.
What began as a series of targeted tariffs has now evolved into a broader conflict, drawing in key players such as China, Canada, and Mexico. According to SBS News, these tensions are expected to disrupt supply chains, increase consumer prices, and create uncertainty for businesses and investors worldwide.
With new tariffs set to take effect on 12 March, Australians could soon feel the impact through higher costs, economic instability, and volatile financial markets.
What Is a Trade War?
A trade war occurs when countries impose tariffs or trade restrictions on each other, triggering retaliatory measures. While often intended to protect domestic industries, such policies typically lead to higher costs, reduced investment, and slower economic growth.
On Tuesday, US President Donald Trump implemented a 25% tariff on imports from Mexico and Canada. In response, Canada’s outgoing prime minister, Justin Trudeau, imposed a 25% tariff on imports from the US. Mexican President Claudia Sheinbaum has also pledged retaliatory measures in the coming days.
However, by Thursday, Trump announced a temporary pause of about a month on these new tariffs. Canada followed suit, halting its countermeasures but maintaining its trade war stance against Washington until all tariffs are removed.
In addition, the US announced that tariffs on Chinese imports would double to 20%, further straining relations between the world’s two largest economies. China has vowed to “firmly counter” these measures.
Flavio Menezes, an economics professor at the University of Queensland, warns that retaliatory tariffs disrupt global supply chains and raise prices for consumers. He explains:
As each side retaliates, trade is reduced, consumers face higher prices due to increased costs of imported goods, investment slows, and overall economic harm ensues,
Professor Tim Harcourt from the University of Technology Sydney describes trade wars as a “tit-for-tat cycle” that ultimately hurts all participants.
“Putting up tariffs is like putting rocks in your own harbour,” he said, highlighting the self-inflicted damage of such policies.
How Could Australians Be Affected?
Although Australia is not directly involved in these disputes, its economy is deeply connected to global trade, meaning the effects could spill over in several ways. Consumers may face higher costs as businesses that rely on imports from affected regions pass on increased expenses.
At the same time, Australian exporters could encounter challenges, particularly if the US-China trade war weakens the Chinese economy, leading to a decline in demand for key exports such as iron ore and coal.
Additionally, businesses operating within global supply chains may face significant disruptions, forcing them to adjust to shifting trade relationships and navigate new economic uncertainties.
The Impact on Everyday Australians
The effects of a trade war extend beyond economic reports—consumers will likely see real changes in their day-to-day lives.
- Rising prices in stores – Tariffs increase the cost of goods, particularly those imported from China, Canada, Mexico, and the US. Retailers may have to raise prices to compensate.
- Possible product shortages – New trade restrictions could slow down the movement of goods, causing delays and stock shortages.
- Shifts in spending habits – Australians may seek locally produced alternatives or delay non-essential purchases.
Professor Menezes emphasises that tariffs create inefficiencies in the economy:
“Tariffs inevitably lead to an inefficient allocation of resources, ultimately stifling economic growth. This inefficiency arises because resources are diverted from their highest-valued uses.”
Could a trade war affect shares and superannuation?
Financial markets react strongly to economic uncertainty, and trade wars often trigger volatility in stock prices.
- Fluctuating share prices – A global downturn could negatively impact share markets, affecting Australian investments.
- Industry-specific gains – Some industries may benefit. For example, Australian steel producer Bluescope could see higher profits if US tariffs push up global steel prices.
According to AMP chief economist Shane Oliver, Australian superannuation funds are particularly exposed:
“Super funds typically have about 60% invested in share markets, so that will have an impact on super funds.”
This means that if the trade war escalates and markets take a hit, Australians could see their superannuation balances affected.
