One year ago, President Trump’s ‘Liberation Day’ tariff announcement introduced the largest single increase in US import tariffs since 1930. Estimates suggest that this increased the effective US tariff rate from less than 2.5% to over 11%. While the majority of these tariffs were struck down by the US Supreme Court in February 2026, this shift in US tariff policy redrew trading lines, with key implications for global markets.
This explainer provides an overview of the past 12 months of US tariff policy, how this policy impacted US trading patterns and what this means for Australia. It presents the following key findings:
- The Trump administration’s Liberation Day tariffs were not uniform across countries, creating advantages and disadvantages while they were in place. US imports shifted dramatically away from China, with Vietnam and Taiwan increasing their share of total US imports.
- Australia did not leverage its low tariff rate to meaningfully increase its trade with the United States. The vast majority (75%) of all trade gains with the United States came from higher gold exports.
- There is evidence of Australia being used as a ‘middleman’ by Filipino producers to dodge an estimated A$83,000 in higher US tariffs on the Philippines.
- Moving forward, major powers are trading more within their own geopolitical groupings. In this environment, diversifying Australia’s trading partnerships becomes a matter of strategic resilience.
Economic integration as leverage, tariffs as coercion
Tariffs, real or threatened, have been the tip of the spear of the Trump administration’s foreign policy.
Tariff rates by country and commodity have fluctuated as the United States has used, or threatened to use, the policy tool to coerce trading partners across a range of issues. President Trump has attempted to use tariffs to stem fentanyl exports, attract investment to the United States, and even to pressure European nations over control of Greenland. The motivation behind tariff increases were often spurious, and the Trump administration’s willingness to use tariffs to pursue foreign policy objectives has eroded the international trading order and allied trust in the United States.
Figure 2 shows the volatility of US import tariff rates over the past 12 months. The initial Liberation Day tariff rates, which ranged from a minimum tariff of 10% to up to 50%, set off an escalating trade war with China. The back-and-forth punitive trade measures peaked at a tariff rate of 145% on Chinese imports, before settling down to 54%.
The European Union (EU) also felt the impact of Trump’s tariff policy. The Trump administration threatened the European Union with a 30% tariff rate during negotiations, before both parties were able to agree to a 15% tariff rate in exchange for Europe’s commitment to purchase up to US$750 billion in US products in the coming years. In January 2026, President Trump threatened to increase this tariff rate to 25% unless Europe sold Greenland to the United States — this was withdrawn a few days later.
Trump tariffs 2.0 — How the administration might rebuild the tariff wall
On 20 February 20, 2026, the US Supreme Court struck down the Trump administration’s reciprocal tariff rates implemented under the International Emergency Economic Powers Act (IEEPA). In a 6-3 decision, the Supreme Court ruled that IEEPA did not give the president the power to implement tariffs. This decision did not affect tariffs implemented under other legislation, including the Section 232 tariffs on aluminium, steel, automobiles and other commodities.
In response, President Trump immediately introduced a 10% global tariff on most US imports, before promising to increase this to 15% two days later. As of March 2026, this 15% tariff rate is not currently in effect but is expected to be introduced in the coming weeks.
Legislation used to implement US tariff policy between April 2025 – April 2026
Throughout Trump’s second term, a series of US legislation has been used to impose tariffs without congressional support.
National Emergencies — International Emergency Economic Powers Act (IEEPA), 1977
- Gives the president the power to deal with any extraordinary threat to the United States if the president declares it a national emergency.
- After declaring the US trade deficit and fentanyl trafficking as national emergencies, President Trump used this law to impose the Liberation Day tariffs.
- In February 2026, the US Supreme Court ruled that IEEPA does not enable presidents to impose tariffs.
National Security — Section 232 of the Trade Expansion Act, 1962
- Allows the president to adjust imports if a Department of Commerce investigation finds that they threaten national security.
- After investigations into steel, aluminium, copper, and automobiles found that their imports threatened domestic production, President Trump placed significant tariffs on these products from all countries.
Unfair Trade — Section 301 of the Trade Act, 1974
- A tool for responding to unjustifiable or unreasonable foreign trade practices that burden US industries.
- The US Trade Representative (USTR) must conduct an investigation to determine if action is warranted.
- The USTR is currently investigating dozens of major trading partners over excess manufacturing capacity and forced labour regulations.
- Likely to be the primary tool for the Trump administration to rebuild their tariff wall.
Balance of Payments — Section 122 of the Trade Act, 1974
- A rarely used provision that allows for a temporary 150-day import surcharge to address serious balance-of-payments deficits.
- This was President Trump’s “Plan B” after the Supreme Court struck down the Liberation Day tariff imposed under IEEPA.
- Tariffs under this legislation cannot be country-specific and are capped at 15%.
This new uniform tariff rate has collapsed the different tariff rates each country faced over the past 12 months, even when factoring in other Section 232 and Section 301 tariffs. Figure 3 shows how tariff advantages are expected to ‘flatten’ under a 15% uniform tariff rate. Markets like China and India have seen their tariff rate fall, while Australia faces a higher tariff rate than it did after the Liberation Day announcement. This means that any tariff ‘advantage’ Australia once had is diminished.
The Trump administration is now leaning more heavily on Section 301 investigations to rebuild its tariff wall, having launched two new investigations in March 2026. The first is focused on countries with ‘excess manufacturing capacity’ and the second is focused on assessing whether countries (including Australia) are sufficiently enforcing laws prohibiting imports of goods made with forced labour. The investigations are expected to be completed in July 2026, and any resulting tariff measures would likely be announced soon after.
This pivot to Section 301 tariffs gives the Trump administration the latitude to target specific countries and issues and apply tariffs at its discretion. Under Section 301, countries, including Australia, could be subject to more punitive tariff rates compared to the initial Liberation Day IEEPA tariffs. This places an onus on Australian government officials to continue engaging with the US Trade Representative in its investigations to demonstrate Australia’s compliance with global environment, social and governance (ESG) standards and free trade. If this is successful, Australia’s tariff rate could return to pre-Liberation Day levels.
Shifting US trade patterns
While all countries saw a significant tariff increase under the initial Liberation Day tariffs, the differences in tariff rates across countries created winners and losers. Figure 4 highlights the relative tariff advantage for key economies prior to the Supreme Court’s decision to strike down the IEEPA tariffs. This tariff advantage captures each country’s US import tariff rate compared to the tariff rate of its main competitors. China and India, which both faced significant tariffs throughout 2025, were severely disadvantaged compared to their competitors, Vietnam and Taiwan.
Mexico and Canada were able to avoid most tariffs through exemptions for goods compliant with the US-Mexico-Canada (USMCA) free trade agreement (FTA), which made up almost 90% of their respective trade with the United States in 2025. Despite facing a tariff rate of 20% for most of 2025, Vietnam also emerged as a winner as significant tariffs on Chinese semiconductors and solar panels made Vietnamese products relatively more competitive. However, a significant amount of increased Vietnamese exports to the United States is being driven by Chinese companies like BYD and Foxconn setting up production in Vietnam.
Relative tariff advantage and disadvantage explained
Relative tariff advantage reflects whether a country faces a lower tariff than its competitors. This factors in the individual country-specific tariff rate, any exemptions (such as the USMCA), as well as what that country sells to the United States.
For example, China and Vietnam sell similar products to the United States, such as textiles and solar panels, and are competitors for US demand. Even though Vietnam faced a high nominal tariff rate (around 20%), it was at a relative advantage to its main competitor, China, which faced an even higher tariff rate (around 50%). This advantage makes Vietnam’s products more attractive to US consumers relative to Chinese products, and explains how some countries with high tariff rates can increase their trade with the United States.
The impacts of these tariff advantages and disadvantages were not uniform. Figure 5 shows each country’s gains or losses in US import share compared with their tariff advantage or disadvantage. The impacts of tariff advantage on US import share can be grouped across five broad categories:
- Limited impacts — This group of countries, which includes major European and Asian markets, saw limited impact on their trade with the United States. These countries had a very marginal tariff advantage, ranging from 0 to 1%.
- Decoupling — As the only country to appear in this category, China saw a massive decrease in its imports to the United States, even relative to its tariff advantage. Based on China’s tariff disadvantage of -20%, we estimate that US imports from China should have fallen by around 7%.1 Instead, they fell by 37%. Clearly, other non-tariff factors are at play here, including tighter export controls on both sides and concerns that trade barriers could rapidly escalate and shift at any moment. It also reflects that many high-volume US imports from China, such as clothing and whitegoods, can be shifted to other producers like Vietnam.
- Resilient — Despite tariff disadvantages for India (-20%) and Brazil (-15%), US imports did not materially decrease. In fact, India’s exports to the United States grew by more than 20%. Even with India’s relatively high tariff rate, companies assessed India-US relations as far more stable than China-US relations, choosing to shift more production to India’s low-cost industrial base. In particular, Apple shifted a significant amount of its iPhone production from China to India, leading to India becoming the largest exporter of iPhones to the United States in the second quarter of 2025.
- Underperforming — Mexico and Canada, which benefited from mostly tariff-free access under the existing USMCA deal, did not translate their significant tariff advantages into major gains in US imports. This could reflect capacity constraints in production or export infrastructure as well as active efforts from Canada to diversify its exports away from the United States, particularly in energy and automobiles.
- Winners — These countries materially increased their trade to the United States by between 40 and 60%, despite having relatively small tariff advantages (2% for Australia and Vietnam) and in Taiwan’s case, a 3% tariff disadvantage. Taiwan and Vietnam both increased their semiconductor exports to the United States and won market share away from China, a major producer. Australia might also look like a winner; however, the vast majority (75%) of its gain in US trade was from gold exports, reflecting a very narrow benefit to the broader economy.
These shifts in trade have resulted in changes in the United States’ trade balance with major economies. Some countries that the United States had an existing trade deficit with (foreign imports being higher than US exports) saw this deficit narrow its favour. The United States’ trade deficit with China fell by US$65 billion.
Other countries like Taiwan and Vietnam further increased their exports to the United States. The United States’ trade deficit with Taiwan grew from US$39 billion in 2024 to almost US$70 billion in 2025. For Vietnam, this deficit grew from US$62 billion (2024) to US$90 billion (2025).
Trade balance explained
Trade balance is the difference between a country's total value of exports and imports over a specific period. A trade surplus (positive balance) occurs when exports exceed imports, while a trade deficit (negative balance) occurs when imports exceed exports.
The United States has a trade deficit with several key trading partners including China, Vietnam and Mexico. A trade deficit is not inherently a bad thing; however, the Trump administration views trade deficits as a sign of economic weakness. Indeed, the Liberation Day tariffs were first calculated based on the United States’ trade balance with each country.
Figure 6 shows how the United States’ trade balance with major trading partners changed after Liberation Day tariffs were introduced. For countries in the green shaded area, the trade balance improved, meaning US imports decreased relative to exports. For countries in the red shaded area, the trade balance worsened, meaning US imports increased relative to exports. Improving the United States’ trade balance with countries like Mexico and India was one of the key motivations behind the Liberation Day tariffs — the graph below shows that this was not successful for some countries.
Australia sits as an outlier — although the United States runs a large trade surplus with Australia, this surplus fell by 45% as Australian exports to the United States increased.
Australia did not benefit from its tariff advantages and was used by other countries to dodge US tariffs
Due to the United States’ trade surplus with Australia, Australia received the lowest import tariff rate of 10%, making it an attractive market for US consumers. This resulted in a 70% increase (A$16.5 billion) in Australian exports to the United States. The United States became Australia’s third-largest export destination in 2025, although making up only around 5% of Australia’s total exports. On the surface, the biggest export winners were beef, gold and copper.
Beef exports saw a small dip at the onset of the Liberation Day announcement before benefitting from the Trump administration’s withdrawal of tariffs on beef to ease cost-of-living pressures. This has been the biggest win for Australia’s economy and reflects a 12% increase in domestic production.
Gold saw a significant spike immediately after the Liberation Day announcement as investors rushed to the safe-haven asset amid global economic uncertainty. The increase in gold exports, which makes up 75% (A$12.4 billion) of total growth in Australian exports to the United States, mostly reflects the massive increase in gold prices since Liberation Day. It is unlikely that this increase in gold exports has had any major positive impacts throughout the broader Australian economy.
The growth in copper exports is also a red herring. Australian copper exports to the United States grew from just A$10 million per quarter in 2024 to over A$365 million each quarter after April 2025. This is a more than twentyfold increase compared to 2024 but a closer look at the data suggests that Australia was used as a middleman to dodge higher tariff rates.
In March 2025, just before Trump unveiled his Liberation Day tariffs, over 30,000 tonnes of copper (worth almost A$1 billion) came into Townsville, Queensland, from the Philippines — it was the first shipment from the Philippines in over a year. This shipment was likely sent to Australia in anticipation of a sizeable US tariff on the Philippines, before being re-exported to the United States. Through this, an estimated A$83,000 in tariffs were avoided by routing the copper shipments through Australia (see Figure 7). For Australia, this means that this remarkable growth in copper exports to the United States does not reflect any actual increase in domestic production — in fact, Australian copper production was unchanged in 2025.
Two clear (and unsurprising) losers were Australian aluminium and semi-finished iron and steel exports, which were both tariffed at 50%. Australia’s aluminium exports to the United States fell to a 5-year low, but were mostly redirected to other markets including Malaysia, Japan and China. Iron and steel exports to the United States fell to a 10-year low, and total exports also fell, suggesting that alternative markets for Australian steel have not materialised.
Overall, Australia did not leverage its favourable tariff rate to meaningfully increase its exports to the United States. Significant tariffs on US imports of aluminium and steel hurt higher-cost Australian producers, in particular. Overall, outside of these specific commodities, Australia’s total exports and exports to the United States remained steady. This suggests that Australia did not leverage its tariff advantage to achieve any meaningful trade benefits.
Looking ahead, trade will continue to shift along geopolitical lines
The Liberation Day tariffs were a major shock to the global economy. But they were also an extension of the past decade or more of US trade policy, which has increasingly used tariffs and export controls to protect domestic industries and de-risk from China. While the Liberation Day IEEPA tariffs are gone, the Trump administration will continue to use a combination of Section 301 investigations, export controls and industrial policies to shift trade away from China.
Figure 9 shows how US import shares have shifted over the past ten years towards countries with more democratic governments and strategic partners, measured using The Economist’s Democracy Index. This deliberate effort to shift trade away from China and towards more democratic and strategically aligned partners helps to de-risk the United States’ trade profile.
In 2015, China supplied 22% of US imports and was the United States’ largest import partner. This figure has now fallen to just 9.4%, with trade shifting to Mexico, the European Union and Vietnam (see Figure 9).
Increasingly, trade is being conducted within geopolitical groupings. Just as the United States is de-risking its trade away from China and towards its strategic partners, China is also shifting its trade towards ASEAN countries, Russia and the Middle East. This withdrawal of major powers into their respective groupings reflects growing economic tensions and is likely to continue moving forward.
Australia’s trade is not following the same trajectory. Over time, Australia’s trade has remained dominated by Chinese imports and exports (see Figure 10). A dependency on any one market, especially one that does not share Australia’s interests in a stable Indo-Pacific region, is a risk. The new trading environment has clearly demonstrated that economic integration is not a protection against economic coercion.
These risks were highlighted during Europe’s energy crisis after the Russian invasion of Ukraine. Despite efforts to shift away from Russian energy supply, many European countries still relied on Russia for a significant amount of their total natural gas demand. Once Russia invaded Ukraine, a global effort to sanction Russia left Europe without one of its largest energy suppliers, leading to massive fuel price increases across the continent. Despite Europe’s dependence on Russian energy supplies, it had to prioritise its own security and its strategic alignment with other sanctioning countries.
This same risk exists for Australia. Policymakers must navigate the reality that Australia’s strategic autonomy is naturally influenced by the actions of its key security partners. If the United States and Japan were to apply economic pressure on China in response to a more aggressive Chinese campaign in the region, Australia may need to act in accordance with its allies. Recent USSC studies suggest that, in this scenario, the strength of Australia’s alliances with the United States and Japan could bring Australia into a collective sanctioning bloc. In a world where trade is increasingly shaped by geopolitics, having a diverse set of trading relationships becomes a matter of strategic resilience.