What are tariffs and when do the US’ steel and aluminium tariffs on Australia begin?

Donald Trump has followed through on his threat to impose tariffs on steel and aluminium imports into the US — and ruled out offering Australia an exemption.

So what does it all mean? Here are your questions answered.

What are tariffs?

Tariffs are taxes on goods imported from other countries. They are usually a percentage of the product’s value.

Companies that bring the goods into the country pay the tax to the Government and often they then choose to pass that additional cost onto consumers.

What tariffs are the US imposing on Australia?

The US has imposed 25 per cent tariffs on steel and aluminium sent to the US on all of its trading partners — “with no exceptions or exemptions”.

Overnight White House spokeswoman Karoline Leavitt dashed hopes Donald Trump might grant Australia an exemption like he did during his first administration, telling Australian media, “He considered it and considered against it. There will be no exemptions”.

Asked why, Ms Leavitt said “American-first steel. And if they want to be exempted, they should consider moving steel manufacturing here.”

Also on the table is the US’ proposed Fair and Reciprocal Plan, which could impose levies on foreign imports, potentially covering everything from government subsidies to the GST.

When will they take effect?

Tariffs on steel and aluminium sent to the US by all of its trading partners, including Australia, are scheduled to take effect from 3pm Wednesday AEDT.

How much aluminium and steel does Australia export to US?

Australia ships about $400 million worth of steel and iron products and about $400m in aluminium to the US each year.

How will the tariffs impact Australia’s steel and aluminium industry?

Australian Steel Association chief executive David Buchanan believes the tariffs will have a minimal effect on the domestic industry because some of the exports are used for internal processing in BlueScope Steel’s factory in Ohio.

“At this stage, there’s probably minimal impact on Australia and I would suggest that it’s not a huge impact for BlueScope,” he told ABC radio.

“Unfortunately, it’ll be passed onto the American consumer.”

Concern has previously been raised about second or third order effects of tariffs on China, pointing out that additional tariffs might lead to dumping of below cost steel in Australia.

Last year, a survey of Australian steel fabricators found 86 per cent were forced to reduce their profit margins to compete with imported steel that was up to 50 per cent cheaper.

Australian Constructors Association chief executive Jon Davies said the tariffs mean uncertainty for the sector, which has weathered material price rises in the wake of COVID and the war in Ukraine.

Costs associated with steel products could rise, impacting construction prices.

“Any additional hit to the construction industry at this time will be extremely problematic,” he told AAP on Tuesday.

“It has no contingencies left to weather any significant impacts or downturns.”

Will Australia retaliate? What is the Government doing?

Not yet. The Government is still hoping Australia might be able to negotiate an exemption.

Prime Minister Anthony Albanese has called the decision disappointing, entirely unjustified, economic self-harm, and fundamentally at odds with the partnership between the US and Australia, but stopped short of flagging any retaliatory measures.

Instead, he is still hoping Australia will be granted a reprieve.

“We don’t regard this as a final decision. The last time around … it took months,” he said

The previous federal government led by Liberal prime minister Malcolm Turnbull took nine months to get a tariff exemption during Mr Trump’s first term.

Why does Donald Trump love tariffs?

Tariffs are a key plank of Donald Trump’s economic plan, and he sees them as a powerful tool of leverage for protecting the US’ national interest.

Ultimately, he wants to reduce imports and drive the production of goods on American soil to create more jobs.

But aren’t tariffs inflationary?

Companies usually pass the cost of tariffs onto consumers, so they are often considered to be inflationary.

Research by the non-profit Tax Foundation estimates the 2018-2019 trade war tariffs imposed by Trump and retained by Biden reduced long-run US GDP by 0.2 percent, the capital stock by 0.1 percent, and employment by 142,000 full-time equivalent jobs.

“Academic and governmental studies find the Trump-Biden tariffs have raised prices and reduced output and employment, producing a net negative impact on the US economy.”

— with AAP