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éthica capital
Feb 5, 2025
3
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Riddhesh Chandwadkar
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The Resurgence of Tariffs: Global Implications and Australia's Position

Riddhesh Chandwadkar
Analyst
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In early February 2025, the global economic landscape experienced a significant, albeit not fully unanticipated shift, as the United States President, Donald Trump, promised to impose substantial tariffs on imports from Canada, Mexico, and China.  

These measures have reignited debates on protectionism, global trade dynamics, and the potential ripple effects on economies worldwide, including Australia.

Understanding the New Tariffs

The U.S. administration announced a plan to impose a 25% tariff on imports from Canada and Mexico, with a 10% tariff specifically targeting Canadian energy resources. Additionally, a 10% tariff was imposed on imports from China.  

The stated objectives behind these tariffs are to hold these nations accountable for commitments related to halting illegal immigration and curbing the influx of illicit drugs, particularly fentanyl, into the United States (The White House, 2025).  

Economic Impacts on North America

The immediate economic repercussions of these tariffs are profound. Analyses by the Brookings Institution indicate that the U.S. could see a reduction in its GDP growth by approximately 0.25 percentage points due to the 25% tariffs on Canadian and Mexican imports. This translates to an estimated loss of around US$45 billion in economic output (Meltzer, 2025).  

If Canada and Mexico retaliate with their own tariffs, the U.S. GDP growth could decline by over 0.3 percentage points, equating to a US$75 billion loss. Canada and Mexico are expected to face even more significant challenges, with potential GDP reductions of over 3 percentage points if retaliatory tariffs are enacted (Meltzer, 2025).  

Global Market Reactions

The announcement of these tariffs sent shockwaves through global financial markets. Major stock indices experienced significant declines amid fears of an escalating trade war. The UK's FTSE 100 dropped by 1.25%, Germany's DAX fell by 2%, and Japan's Nikkei decreased by 2.66% (Wen and Wearden, 2025).  

In the U.S., banks and automotive stocks were particularly affected due to concerns over increased costs and potential supply chain disruptions. The U.S. dollar, however, strengthened against major currencies, reflecting a flight to safety by investors.  

At the time of writing, it has been announced that a 30-day pause will be implemented for the tariffs on Canada and Mexico, following negotiations between the U.S. and these nations. This pause is intended to allow for further discussions and potential resolutions to the underlying issues (Boak, Sánchez and Gillies, 2025).

Implications for Australia

Australia, with its open economy and significant trade relationships, is not insulated from these developments. The Australian dollar depreciated, and the ASX experienced notable declines as fears of a global trade war intensified. Export-oriented sectors, including healthcare and retail, faced substantial stock downturns (Smith, 2025).

The Australian government has approached the evolving situation with caution. Foreign Minister Penny Wong emphasised managing the relationship with the U.S. with "eyes open," acknowledging the potential economic impacts while underscoring the importance of the alliance.  

Trade Minister Don Farrell has been tasked with exploring strategies to protect Australian manufacturing jobs, particularly in sectors like steel and aluminium, which could be adversely affected by the influx of cheaper Chinese goods due to the new U.S. tariffs (Olbrycht-Palmer, 2025).  

Broader Economic Considerations

The International Monetary Fund (IMF) has expressed concerns, projecting that higher tariffs affecting a significant portion of global trade could decrease economic output by 0.8% in 2025 and 1.3% in 2026. Such a downturn would have widespread implications, particularly for trade-dependent nations like Australia (Smith and Fleming, 2024).  

The reimplementation of substantial tariffs by the U.S. marks a pivotal moment in global trade dynamics. While aimed at addressing specific national concerns, these measures carry significant economic implications that extend far beyond the involved nations

éthica capital, Green Bond Corporation SARL (GBC) and Carbon Capital Corporation (CCC)  

éthica capital, Green Bond Corporation SARL (GBC) and Carbon Capital Corporation (CCC) form part of The Green Bond Corporation Group (GBC Group). Combining deep expertise and global thought leadership in sustainable finance, infrastructure development and carbon-based financing that aligns with your environmental and humanitarian goals, empowering your business to achieve greater success and create a meaningful positive impact.

References

The White House (2025). Fact Sheet: President Donald J. Trump Imposes Tariffs on Imports from Canada, Mexico and China – The White House. [online] The White House. Available at: https://www.whitehouse.gov/fact-sheets/2025/02/fact-sheet-president-donald-j-trump-imposes-tariffs-on-imports-from-canada-mexico-and-china/.

Meltzer, J.P. (2025). Trump’s 25% tariffs on Canada and Mexico will be a blow to all 3 economies. [online] Brookings. Available at: https://www.brookings.edu/articles/trumps-25-tariffs-on-canada-and-mexico-will-be-a-blow-to-all-3-economies/.

Wen, P. and Wearden, G. (2025). US, EU and UK stock markets hit by global trade war fears as JPMorgan says Trump administration may be ‘business unfriendly’ – business live. [online] the Guardian. Available at: https://www.theguardian.com/business/live/2025/feb/03/donald-trump-tariffs-live-blog-news-updates-stock-market-canada-china-mexico.

Boak, J., Sánchez, F. and Gillies, R. (2025). Trump and Trudeau speak and plan to do so again before tariffs start on Tuesday. [online] AP News. Available at: https://apnews.com/article/trump-tariffs-canada-mexico-china-sheinbaum-trudeau-017efa8c3343b8d2a9444f7e65356ae9.

Smith, M. (2025). Trump tariffs hit ASX as Australian businesses assess costly fallout. [online] Australian Financial Review. Available at: https://www.afr.com/policy/economy/trump-tariffs-hit-the-asx-with-fisher-and-paykel-dragged-into-storm-20250203-p5l92n?.

Olbrycht-Palmer, J. (2025). ‘Eyes open’: Australia’s call on Trump tariffs. [online] news. Available at: https://www.news.com.au/world/north-america/us-politics/australia-navigating-us-relationship-with-eyes-open-as-trump-begins-tariffs-wong-says/news-story/b1fc986afc1ad2504c79f707c48ed65f.

Smith, C. and Fleming, S. (2024). Tariff surge would damage global growth, IMF warns. [online] Financial Times. Available at: https://www.ft.com/content/f7c31ee0-8eb3-41a3-98fb-c84a6604deab.

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