Australia could benefit from redirected global capital flows in the wake of new US tariffs under President Donald Trump — but only if it maintains its commitment to open markets, according to the country’s Productivity Commission.
In its latest Trade and Assistance Review, the commission warns against retaliatory trade measures, noting such moves would come at a cost. Deputy Chair Alex Robson has cautioned that escalation could “spiral into a broader trade war” with serious consequences for Australia and the global economy.
“Increasing our direct barriers to trade and investment, even if in retaliation, would come at a cost,” the review reads.
The report also highlights that Australia is facing its highest level of economic uncertainty since the COVID-19 pandemic. However, it notes that some of the proposed trade measures from the US could have a modest, positive effect on Australian production if the country stays on its current path.
Tariff reforms
According to the Productivity Commission, Australia is leaning toward abolishing 457 tariffs in 2025.
Still, it strongly suggests that even nuisance tariffs must go, with a total of 300 identified by the commission.
“(We believe) generate little revenue and impose high costs on business … We estimate that, in 2023-2024, the tariff regime imposed compliance costs of between AU$1.3 billion and AU$4 billion, while collecting AU$2 billion in revenue.”
The commission also illustrated the effects of abolishing tariffs, saying that this move will lead to maximizing benefits to Australian production.
“For example, if the US imposed a 10 percent tariff on all imports and Australia retaliated alongside other countries by imposing a 10 percent tariff on imports from the US, Australian GDP would be 0.14 percentage points lower than if Australia chose not to retaliate.”
In a separate analysis by Austaxpolicy, this aspect of the report was also highlighted, underlining how cheaper imports from the rest of the world, an outflow of productive capital from the US and highly tariffed economies could slightly increase Australian production.
Industry assistance
The Australian Government’s Future Made in Australia (FMIA) Act commenced in 2024, and the mining and resource industry has seen a wave of grants and support since.
“(We) found that the costs of FMIA interventions can be minimised through using alternatives or complements to domestic production. Such policy options could be explicitly considered as part of the legislated sector assessments process.”
On February 12, Australia passed the Critical Minerals Production Tax Incentive, which will provide a refundable tax credit on 10 percent of eligible costs associated with the production of critical minerals and rare earths.
“The incentives are valued at AU$7 billion over the decade,” said Federal Resources Minister Madeleine King, calling the legislation a “historic moment” for the industry.
Last April 23, Western Australia announced another round of successful applicants for its Exploration Incentive Scheme (EIS).
Among the 49 drill funding recipients are Wildcat Resources’ (ASX:WC8,OTC Pink:WDCTF) Tabba Tabba project and Western Mines Group’s (ASX:WMG) Mulga Tank, which are targeting critical minerals such as lithium, nickel and copper.
Together, all 49 companies will receive a total of AU$7.8 million as drill funding to 49 projects, while AU$3.2 million will be spread across 25 geophysics ventures. The remaining AU$200,000 will be divided between three projects under the EAP.
Australia’s Commonwealth Scientific and Industrial Research Organisation (CSIRO) also opened its doors with a new graphite research and development (R&D) program to assist small-to-medium-sized enterprises.
The initiative will allow eligible enterprises to receive up to AU$50,000 per project and collaborate with CSIRO scientists, and access quality facilities.
Expressions of interest are open until March 30, 2026.
All these and more funding efforts, according to the Productivity Commission, fall under the “behind the border” assistance, which it expects to grow further under the FMIA initiative.
“As these traditional forms of ‘at-the-border’ trade protections have receded, the relative importance of ‘behind-the-border’ industry assistance such as budgetary assistance and concessional finance has grown,” the commission explains.
Mining and numbers
According to the report, mining is among the “favoured” industries, with research and development measures as the main type of budgetary assistance.
Majority, as in 87.4 percent, of mining assistance is delivered through R&D, which is undeniable given the number of grants and government funding programs for the sector.
The commission did note that mining, alongside services, received a lower share of assistance than their share of the economy, despite receiving the greatest share of budgetary assistance in absolute terms.
For the period of 2023 to 2024, the commission found that mining remains the top destination sector for foreign direct investment (FDI) inbound to Australia, equivalent to 15 percent of gross domestic product (GDP).
However, this amount falls short of the sector’s five-year average, which is 17 percent.
It was also noted that the United States remains the largest source of FDI inbound to Australia. Following its lead are the United Kingdom, Japan, Canada and China, with their FDI equivalent to 24.8 percent of GDP.
Recent news
August opened in Australia with news that it is not listed as a country hit with a higher ‘reciprocal’ tariff under Trump’s executive order.
Trump’s tariffs on the country will remain, still on the price of 10 percent.
Minister for Trade and Tourism Don Farrell was quoted by News.com.au saying that US Commerce Secretary Howard Lutnick has been invited to Australia for continued discussions, underlining that Australia will continue to advocate for a tariff exemption.
“We believe in free and fair trade, and we will continue to put the argument to the US that they should remove all tariffs on Australian products in accordance with our free trade agreement, and we will continue to prosecute that argument.”
Securities Disclosure: I, Gabrielle de la Cruz, hold no direct investment interest in any company mentioned in this article.
