US imposes 12.5% tariff on Australian exports, citing forced labor concerns

The US government has confirmed a 12.5 per cent tariff will be placed on Australian exports to the US from this afternoon.

Here's what that means, US President Donald Trump's reasoning for it and how Australia has responded.

What is a tariff?

A tariff is a fee added when goods are sent from one country to another.

This import tax is paid by the company receiving the goods.

Here's a very basic example of how tariffs work, based on Emily Clark and Brad Ryan's explainer:

Let's say Country A is exporting a product to Country B and that item costs $100.

Country B has imposed a 12.5 per cent tariff on goods from Country A.

When the product arrives in Country B, the company importing the product ends up paying $112.50 for the product.

That's $100 for the item, and an extra $12.5 in taxes.

This creates a question about how the importer responds to these extra costs.

Importers could simply pass that cost on to their customers, ask the exporter to give them a discount or stop buying from that overseas seller altogether.

What is the latest?

Mr Trump's government announced it was imposing a new set of tariffs on dozens of countries after an investigation into forced labour in international supply chains.

The announcement said 10 per cent tariffs would apply to goods from more than a dozen countries and the European Union.

Goods from most of the other countries on the list would cop tariffs of 12.5 per cent — including Australia.

The US government said these tariffs would take effect from 12:01am Friday, local time.

That's 2:01pm AEST.

Wasn't there already a US tariff on Australian goods?

Yes.

The US had already placed a temporary 10 per cent levy on Australian goods, known as the Temporary Import Surcharge.

So this new announcement increases the levy on Australian goods by 2.5 per cent.

The Temporary Import Surcharge, announced in February, was due to expire today.

Why is the US doing this?

The US government says it's about clamping down on slave labour.

US trade representative Jamieson Greer had previously accused trading partner countries of failing to "address the importation of goods made with forced labour".

"This creates a dynamic where American workers are forced to compete globally on an unlevel playing field," he said.

But Susan Stone, from Adelaide University's School of Economics, said Mr Trump appeared to be looking to find ways to impose tariffs that could not be blocked by the courts.

"The Trump administration has been ... looking for ways to apply blanket tariffs on goods coming into the US," she said.

"Trump, as you know, really likes tariffs.

"He thinks that they're an effective way to raise revenue."

Mr Trump had previously slapped tariffs on foreign imports, but they were found to be illegal the US Supreme Court in February.

He said his government would look for "great alternatives" to replace the tariffs that were struck down.

And that included an option to apply tariffs under Section 301 of the Trade Act of 1974, which allows the US government to act on "unfair trade practices".

This means the US can investigate whether "the acts, policies, or practices are unreasonable or discriminatory and burden or restrict US commerce".

And, if this is proven, the US trade representative has the power to take "responsive action", like imposing tariffs or backing out of trade deals.

"This particular method through this Section 301, they're called, this has a little bit more process behind it," Dr Stone said.

"[It] has been shown to withstand core challenges a bit better than the attempts he's made through other channels in the past."

How could this affect Australia?

"This decision will make it harder for Australian businesses to compete and sell their products into the US market, hurting investment and our jobs," Business Council of Australia chief executive Bran Black said.

"Australia already runs a trade deficit with the United States, and we remain deeply integrated partners.

"The US is our largest two-way investment partner, with total investment exceeding $2 trillion."

Australia's Trade Minister Don Farrell confirmed that tariff exemptions on some goods, like beef, gold and copper, would remain in place.

"Our largest exports to the United States continue to get into the United States tariff-free," he said.

However, exporters of other goods might be pushed to trade with other countries.

"I think we will continue to have a high volume of trade into the United States, but we're always looking for new markets," he said.

How has Australia responded?

Deputy Prime Minister Richard Marles said the decision "makes no sense".

"We continue to make that argument to the Trump administration, both in terms of trade but also in terms of our stance in relation to forced labour," Mr Marles said.

He agreed that it was important to combat forced labour.

"We share an objective there to stamp that out," he said.

"But we would have also made clear that the legal regime that we have in Australia in respect of forced labour is amongst the best legal regimes that exist in the world today.

"We're making that point very clearly to the Trump administration as well."

Mr Farrell said he was "disappointed" by the move.

"These tariffs are unjustified, inconsistent with our free trade agreement, and should be removed," he told reporters.

"We believe that amongst all of the countries in the world, Australia does take the issue of slavery, modern slavery seriously, and will continue to do that."

What could happen next?

"I would expect Australia to be very forceful in its condemnation of these tariffs," Dr Stone said.

"I think that they may, either on their own or together with other countries, try to pursue the methods that are available through the World Trade Organisation in terms of lodging complaints and trying to be able to stop these tariffs on that ground.

"That's a bit of a slower process, but it could have implications further down the line.

"In the meantime, there's really not a lot we can do."

Mr Farrell said the government would continue to lobby the US trade representative to remove all tariffs on Australian goods.

"We will continue to argue very strongly for the removal of these tariffs," he said.