China – Australia Trade Dispute Triggers Tariff Shockwaves

China - Australia Trade Dispute Triggers Tariff Shockwaves

Trans-Pacific Freight Disruptions Unfold – What’s Next for Australian Trade?

On 3 April 2025, the Australian public was notified by DFAT that a sweeping 10% tariff would be applied to all goods exported from Australia to the United States. This announcement follows a series of protectionist policies under the White House’s reinvigorated “America First” approach, aiming to rebalance trade by levying tariffs on nations that have historically imposed duties on U.S. exports.

The most striking element for Australian exporters was the apparent disregard for the long-standing Australia–United States Free Trade Agreement (AUSFTA), which had previously ensured duty-free access for most Australian goods. This broadcast, remaining completely apolitical, outlines the implications for importers and exporters and explores how these events may reshape the landscape of international trade in the next 90 days – with a focus on the Asia-Pacific region.

A New Era of Trade Friction

While China has borne the brunt of the U.S. tariff escalation—with a combination of a 125% reciprocal tariff, 20% fentanyl-related levy, and an additional 7.5%–100% under Section 301—Australia is not immune. A flat 10% “baseline” tariff now applies to all countries, including FTA partners.

China has responded in kind, lifting its tariffs on U.S. goods to 125% and restricting exports of critical rare earth materials used in advanced manufacturing and renewable technologies.

This intensifying situation has been dubbed “Trade War 2.0” by the Peterson Institute for International Economics, which is maintaining a live timeline of the escalating tariff measures.

In fact, Reuters has reported that the widespread impact of US tariffs on the global economy has caused the WTO to downgrade its global trade growth forecast from +3.0% to -0.2% – this is a difference in expectation now of more than 3%. Of course, a contraction in global merchandise trade will have a direct and immediate impact on the global GDP; the concern being that a recession in many locations could be imminent.

Australia’s Position

Australia is, for the time being, subject only to the 10% general tariff increase, making Australian goods 10% more expensive in the U.S. market based on FOB values. At the outset of the tariff escalation, there was some concern and confusion that the commodity-specific tariffs and the baseline would compound—such that the 25% on steel and aluminium would be 37.5% (unit FOB price x 25% x 10%). However, Austrade has confirmed that exemptions from the baseline are allowed on:

  • Steel and aluminium articles that are already subject to national security sectoral tariffs of 25% under Section 232 of the Trade Expansion Act
  • Automotive vehicles and parts that are already subject to national security sectoral tariffs of 25% under Section 232 of the Trade Expansion Act (noting the tariffs on vehicle parts are to take effect by 3 May 2025)
  • Timber and lumber articles and some derivatives, and copper products and some derivatives, that are currently under investigation for possible tariffs under Section 232 of the Trade Expansion Act
  • Semiconductors, certain critical minerals and select pharmaceutical products, which the Trump Administration has identified for further consideration under Section 232 of the Trade Expansion Act
  • Certain minerals not available in the US, energy products, coins, and bullion
  • All articles that become subject to future tariffs under Section 232 of the Trade Expansion Act.

In response, prior to the recent election the Albanese Government proposed the following potential measures:

  • $5 million to enhance anti-dumping capabilities and monitor risky imports
  • $50 million to assist affected industries in exploring new international markets
  • $1 billion in zero-interest loans under a new Economic Resilience Programme
  • Reforms in government procurement to favour local businesses and increase Australian content
  • Creation of a critical minerals strategic reserve to underwrite domestic supply chains

Key Industry Impacts

According to Trading Economics, in 2021 Australia exported around $14 billion worth of goods to the USA. Key sectors affected include:

  • Meat and edible offal ($4 billion+): Price-sensitive and likely to see demand soften
  • Pharmaceuticals: Perhaps less impacted due to lower price elasticity
  • Aluminium, iron and steel: Face significant cost burdens due to a 25% tariff

While these tariffs impact exports, the Australian Government has confirmed it will not retaliate, meaning imports from the U.S. will remain duty-free under AUSFTA provisions, stating:

“Australia has a Free Trade Agreement with the United States and continues to advocate for maintaining open trade. The US pays no tariffs for exports to Australia under the Australia-United States Free Trade Agreement (AUSFTA).” (DFAT)

Currency Movements and Trade Balance

The Australian dollar (AUD) fell sharply to a low of 59 U.S. cents on 4 April, before rebounding slightly to 62c. A weaker AUD makes Australian exports more attractive to overseas buyers, helping offset the new tariffs. However, it also increases the cost of imported consumer goods—most of which are priced in USD – posing inflationary risks.

The China Factor

China, Australia’s largest trading partner, is under mounting pressure from Washington. Following the November 2024 U.S. election, American importers rushed to “front-load” orders from China, anticipating tariff hikes. This resulted in:

  • A temporary container glut at U.S. ports
  • Dozens of blank sailings on China–USA routes
  • A surge in shipping activity during the peak season, followed by a sharp slowdown

At Shanghai’s Yangshan and Waigaoqiao terminals, many containers bound for the U.S. missed the 9 April deadline and remain stranded. Some shipping lines, such as MSC, have already cancelled multiple Trans-Pac voyages. Meanwhile, industry sources advise that the Premier Alliance has postponed the launch of a new route altogether.

Shipping Lines Under Scrutiny

Further upheaval may lie ahead if the U.S. Trade Representative proceeds with its proposed tariffs on Chinese-built ships under Section 301. This would impose:

  • $1 million per voyage on Chinese-owned ships docking at U.S. ports up to a certain number of voyages per year
  • $1.5 million per voyage on non-Chinese-owned carriers using Chinese-built vessels, up to a certain number of voyages per year

Such measures would significantly alter the cost structure of the global container fleet.

What Comes Next?

The overcapacity in global shipping, a result of pandemic-era profits being reinvested into new vessels, is now under pressure. As fewer containers move between China and the U.S., capacity is expected to be reallocated, though Australia’s port constraints make it unlikely to absorb this tonnage directly.

What we may see:

  • Trans-Pac freight rates could begin to fall from May onwards
  • Chinese exporters may reduce prices to attract non-U.S. buyers
  • A weaker yuan (past USD/CNY 7.4) could enhance China’s export competitiveness into markets still willing to purchase Chinese goods without tariff imposition
  • Peak season shipping rates may not rise as expected (or if they do start to climb, not as fast or as far) due to excess vessel availability

The current scenario clearly demonstrates the sheer influence of the American consumer market. Dozens of countries are now negotiating to lift or defer new U.S. tariffs—highlighting the urgency to preserve access to the world’s largest economy.

Australia consistently maintains a trade surplus with China – some $30bn in 2024. As our largest trading partner, the strength (or otherwise) of the Chinese economy is a very important factor in Australia’s overall economic condition. This will be one key area to watch in the coming months.

Final Note

This op-ed is intended solely for educational and informational purposes. It summarises recent events and speculates on potential implications for global freight and logistics. It does not constitute financial, legal or customs advice, nor is it tailored to any one specific customer or reader. There are multiple unfolding complexities in this situation, and it is developing rapidly. This whitepaper represents best available information and is general in nature. We do not warrant its accuracy or completeness and may need to update or change it. For personalised support, please consult a professional advisor or contact your 20Cube account manager to discuss your specific shipments and supply situation.