US trade tariffs: What your board needs to know

US trade tariffs are back on the table and Australian businesses could feel the impact. With uncertainty surrounding trade policy shifts, experts advise company directors to stay strategic, assess exposure and explore diversification opportunities.

Last week, US President Donald Trump said his administration would introduce tariffs of 25 per cent on steel and aluminium imports into the United States, later revealing this would include “reciprocal” tariffs on US trading partners which would be “fair to all”. Yet even as the impact on Australia remains unclear, experts are urging boardrooms to ignore the noise and continue to stay the course and govern with pragmatism.

AICD Chief Economist Mark Thirlwell GAICD wasn’t surprised the 47th US president, “a self-proclaimed tariffs man”, pulled a geo-economic lever he introduced during his first term in office, some of which were exclusively targeted at China. Thirlwell urges directors to be proactive in running through their trading checklist, starting as always with assessing their company’s exposure.

Why businesses must stay the course

“You’ve got your traditional trade works in place, you stick with those and do that same organised, ordered approach as before,” says Thirlwell. “Don’t be panicked or rushed, do the due diligence and take the strategic view that boards are supposed to take. Continue to do that despite all the noise around you.”

Thirlwell cautions against “tyranny of the present” talk that we are in a time of unprecedented uncertainty, noting that COVID, Russia’s war on the Ukraine and the global financial crisis should have left anyone who has served on a board in recent years no stranger to economic upheaval.

Navigating direct and indirect risks

He advocates boards respond as they would when faced with any shock, and not be distracted by the added layer of “Trump shock”.

“The first question for directors is, are we directly exposed to changes in US trade policy? Part two is the indirect effects. What happens if there’s retaliation from other trading partners — could that impact us? And the indirect stuff — maybe I’m a purely domestic-focused player. Do I even have to worry about international trade?”

Thirlwell also warns of indirect threats, such as tariffs imposed on China, or a slowing Chinese economy and its effects on Australia’s domestic growth. Separating noise from fact is central to Westpac Head of International Economics Elliot Clarke’s consultation with clients around Trump’s impending “trade war”, with a focus on divining the real impact on the economy. Clarke acknowledges a climate of uncertainty makes it difficult to concentrate on growth opportunities, but champions acting for a positive future.

“You need to be cautious about the risk, but focused on where you can grow and develop as well,” says Clarke. “It’s not to be caught up in that anxiety, but rather recognise it, do what you can to mitigate the risk, then think about how you can continue to grow. Because the more you can grow, develop and diversify, the better positioned you are to withstand those risks and uncertainties and pivot as you need to.”

Diversify and expand

Australia sent approximately $1 billion worth of steel, iron and aluminium to the US in 2023, accounting for around five per cent of our total exports to America. Yet even if Prime Minister Anthony Albanese is denied a request for an exemption to Trump’s tariffs (which have also been imposed on other historic allies Canada and Mexico), Clarke sees opportunity for Australian companies to strengthen their bottom line by shifting their gaze.

“We continue to emphasise the strength we’re seeing in Asia — the positive stories that get lost around China, and the emerging developments we’re seeing across Southeast Asia, which are quite promising for Australia as well,” says Clarke. “More generally, we need to be mindful that the US is one country in the world, and we need to have strong relationships with as many countries in the world as we can.”

Rethinking global supply chains

Expansion and diversification bring their own boardroom challenges, not least an acute understanding of logistics, supply chain and the risk of added volatility in emerging markets.

For Thirlwell the prospect of a world in which the big powers increasingly throw their weight around — with tariffs merely one weapon in their armoury — poses deep questions for company directors.

“If you’re a big multinational, the way the world has worked, you’ve worked as a little trade empire of your own — sending stuff back and forth across borders multiple times, to minimise costs, to trade off different tax regimes. It has made sense to do that. [But] in a world where tariffs can shift very quickly and there’s potential for things to change month to month almost, does that model still make sense? If it doesn’t? What do you put in its place?”

Security vs trade

Clarke foresees a more settled US climate two years hence and more conversation around opportunities in Asia. For Thirlwell, another factor boards will need to navigate plays to a long-running challenge for Australia as a nation of choosing between a security partner and a trading partner.

“The story told across a global economy is about the world splitting potentially into different camps, this fissure running down,” says Thirlwell. “The really striking thing about Trump 2.0 is you’ve still got elements of that — the China tariffs are there. But there’s also the apparent willingness to deploy this against allies. So you’ve got geo-economic fragmentation, but you’ve also just got fragmentation, and you’re not necessarily protected by being an ally. That does make it complicated.”

“Previously, it was a nasty enough decision to say we don’t want to pick a camp, because there are losses either way we go. But if there isn’t even a camp to pick, because your ally can smack you around the head with tariffs when it suits them, then you get into a really tricky position.”