Time For Australia To Abolish Tariffs

As the global economy grapples with challenges from inflationary pressures to geopolitical tensions, there is heightened interest in trade tariffs as a policy tool. The United States and members of the European Union have threatened to reintroduce or increase tariffs, citing the need to protect domestic industries or respond to strategic imperatives.

In Australia, no political constituency is in favour of raising tariffs. But as the world shifts, Canberra finds itself at a crossroads: should it maintain, reduce, or abolish its remaining tariffs?

Their economic inefficiency, the hidden costs they impose on businesses and consumers and the domestic and international studies that expose these costs recommend that Australia should take the bold step of abolishing the last vestiges of its tariff regime.

Australia has progressively liberalised its trade policies over the last three decades, transforming from a highly protected economy to one of the most open in the world. Yet ‘nuisance tariffs’ persist, typically ranging from 3 to 5 per cent on a range of imported goods. In 2024, the Australian government accepted the Productivity Commission’s argument to abolish nuisance tariffs, removing around 500 tariffs unilaterally. But in doing so, it still retained around 4500 tariff lines, seemingly as ‘negotiating coin’ to trade off in currently stalled bilateral trade agreements, such as that with the EU.

These tariffs compel businesses to navigate complex customs procedures, adding compliance costs and reducing efficiency. At a time when Australia’s economic competitiveness hinges on seamless integration into global supply chains, these barriers are counterproductive.

While low, Australia’s remaining tariffs — as the Productivity Commission, an independent advisory body, has argued — are not merely harmless irritants. They create significant administrative burdens, distort supply chains and impose costs on both businesses and consumers without delivering meaningful protection to domestic industries. The Productivity Commission’s 2017 report on Australia’s tariffs labelled them ‘outdated’ and ‘ineffectual’, highlighting their negligible contribution to government revenue, the high costs of collecting them and their disproportionate impact on small- to medium-sized enterprises.

The international evidence is clear — tariffs generally harm more than they help. In the United States, the imposition of steel and aluminium tariffs under Donald Trump’s first presidency provides a cautionary tale. A study by the Peterson Institute for International Economics estimated that these tariffs cost American consumers and businesses US$650,000 for every steel-related job they created. Far from revitalising domestic industries, the tariffs triggered retaliation from trade partners, disrupted global supply chains and raised input costs for US manufacturers, reducing their international competitiveness.

IMF research similarly shows that even low tariffs act as a drag on productivity, innovation and unemployment, as well as aggravating inequality and promoting self-defeating real exchange rate appreciation. By insulating domestic industries from competition, tariffs discourage firms from investing in new technologies and improving operational efficiencies. The net effect is an economy that grows more slowly, offers fewer high-quality jobs and provides fewer choices to consumers.

Retaining nuisance tariffs has both direct and indirect costs. Direct costs include increased prices for imported goods, disproportionately affecting low-income households that spend a larger share of their income on consumables. Higher prices also raise businesses’ input costs, particularly in sectors like manufacturing, construction, agriculture and retail where imported materials and goods are integral to efficient operations.

Abolishing the remaining tariffs would yield significant benefits for Australia. It would lower costs for businesses and consumers, helping combat inflationary pressures and improve living standards. The Productivity Commission estimates that eliminating nuisance tariffs would also save Australian businesses hundreds of millions of dollars annually in administrative and compliance costs alone, not to mention the savings from lower input prices and streamlined government processes.

The abolition of Australian tariffs would also enhance Australia’s economic resilience by simplifying supply chains. In a world marked by increasing trade disruptions and geopolitical uncertainties, the ability to source goods flexibly and cost-effectively is a critical competitive advantage and source of resilience.

While some might highlight that Australia has reduced applied tariffs across numerous so-called ‘free’ trade agreements, even a zero per cent tariff line still imposes higher administrative costs on businesses. These costs arise from the need to comply with the terms of preferential trade agreements to seek the tax relief available. If businesses make mistakes when requesting preferential treatment for imports, they face potential penalties under the Customs Act’s strict liability provisions for false and misleading statements. Removing tariffs altogether would ensure that Australian businesses can procure the best quality inputs at the lowest prices, regardless of their origin.

Tariff abolition would also strengthen Australia’s leadership in global trade policy. As the United States and European Union backtrack on trade liberalisation, Australia has an opportunity to position itself as a model for the benefits of open markets, reinforcing its credibility in international negotiations.

With the 2025 national Australian election approaching, an incoming government has the opportunity to eliminate the remaining tariff system. This would overcome the cost of operating a system that collects less revenue than it costs to administer. It would simultaneously remove imposts on imports and materially reduce inflation, while removing administrative burdens for businesses through import simplification, removing tariff concession orders and duty drawbacks.

The global reintroduction of trade tariffs is a concerning trend, but it also provides an opportunity for Australia to distinguish itself as a leader in economic openness, to its own benefit.

Bryan Clark is Director of The Australian Centre for International Trade and Investment.

#<p>The post Time for Australia to abolish tariffs first appeared on East Asia Forum.</p>