Protectionist policies are quickly reshaping global trade dynamics in 2025. US President Donald Trump has pursued tariffs on multiple trading partners, with the International Monetary Fund (IMF) warning increased protectionism could hurt global growth.
“There is definitely a direction of travel here that we are very concerned about, because a lot of these trade-distorting measures could … ultimately be harmful not only to the global economy, but also hurtful for the countries who implement them,” commented Pierre-Olivier Gourinchas, the IMF’s Chief Economist.
While the impact of the tariffs on Australia’s economic outlook remains uncertain, supply chain disruptions, rising costs and increased competition are likely consequences – issues that businesses must navigate with agility, particularly when it comes to managing cash flow.
UNSW Economist Scott French cautions that even if Australia avoids direct tariff impacts, it will not be immune from the international fallout. “It’s difficult to predict exactly how Australia would be affected,” says French, noting that “trade policy uncertainty from just the threat of a trade war has similar effects on business activity as actual tariffs.”
US tariffs on Canada and Mexico could impact Australia
The US has officially imposed 25% tariffs on Canadian and Mexican goods. These tariffs are expected to raise costs for businesses and disrupt global supply chains.
For Australia, this could result in higher prices and supply delays for goods that pass through or originate from North America. Industries such as manufacturing, automotive and agriculture – which source machinery, components and raw materials from Canada or Mexico – may face rising costs.
Beyond direct costs, the tariffs could reshape global trade flows, with exporters seeking alternative markets, both in and out of the US. Canada and Mexico could redirect exports to Australia, increasing competition for Australian agriculture, energy and metals sectors.
French notes one positive effect for Australia of US tariffs is trade diversion. “Because they raise the price of other countries’ exports to the US, they may make some Australian exports more competitive. For example, the tariffs on Canadian aluminium would have shifted US demand toward aluminium produced in Australia.”
Joshua Richards, Director of Twin Peaks Finance, has already had clients raise concerns about the tariffs. “One of our clients is a major importer from Canada. Almost immediately, they were asking, ‘What does this mean for us? How will it affect our supply? And how do we pivot to domestic supply if we need to?’ They were already considering how to fund a shift to domestic sourcing. It might be more expensive, but it offers greater certainty in securing the product.”
For importers, securing working capital to manage potential rising costs and delays will be crucial. Octet’s supply chain finance solutions can help businesses bridge payment gaps, ensuring they can continue to source essential materials without straining their cash flow.
Australia fails to secure exemption on steel and aluminium exports
In February 2025, President Trump announced a 25% tariff on all steel and aluminium imports, aiming to boost US domestic production by making foreign metals more expensive.
However, AMP’s Chief Economist, Dr Shane Oliver, downplayed the potential direct impact on Australia to the Accounting Times. “Even if Australian exports are not exempted from US tariffs, the direct economic impact on Australia will be minor. Steel and aluminium exports to the US are just 0.03% of Australian GDP and total goods exports to the US are just 0.8 per cent of GDP.”
Instead, he warns of a broader economic risk, stating: “The main threat to Australia would come via Trump’s tariffs leading to less global trade and a hit to Chinese and global GDP, weighing on demand for our exports and hence our GDP.”
How US tariffs could affect Australia’s trade with China
The US has imposed a 20% tariff on China. China is Australia’s largest two-way trading partner, according to the Department of Foreign Affairs and Trade, accounting for 26% of our goods and services trade with the world in 2023-24. During that period, two-way trade with China increased 2.6 per cent, totalling $325 billion.
If the tariffs weaken China’s broader economy, Australian businesses could feel the heat. Diversifying trade relationships will be critical.
However, there are reasons to be hopeful: China absorbed the tariffs of the previous Trump administration and recent economic data suggests resilience in China’s economy. If China maintains steady industrial growth, the impact on Australian exports may be limited. For businesses exposed to these risks, diversifying supply chains and securing alternative funding sources will be critical.
Strengthen your supply chain to navigate uncertainty in global trade
While Australia has so far largely avoided direct trade conflicts with the US, it remains highly vulnerable to global shifts in trade policy. The recent failure to secure an exemption from US steel and aluminium tariffs highlights Australia’s limited influence over American trade policy.
As the new policies reshape global markets, agility and reliable funding are more critical than ever. Octet’s innovative working capital solutions, such as tailored Trade Finance and Debtor Finance, empower Australian businesses to navigate supply chain issues, manage rising costs and seize new opportunities – while optimising cash flow.
Connect with our team today to explore how we can power your business growth through uncertainty.
Disclaimer: These comments are only our views and should not be construed as advice. You should act using your own information and judgment. Although information has been obtained from and is based upon multiple sources the author believes to be reliable, we do not guarantee its accuracy, and it may be incomplete or condensed. All opinions and estimates constitute the author’s own judgment as at the date of publication and are subject to change without notice.
