Tariff triumph or trouble? | Insiders: On Background | ABC News

Key Concepts:

• Tariffs: Taxes imposed on imported goods.
• Inflation: A general increase in prices and fall in the purchasing value of money.
• Free Trade Agreement (FTA): An agreement between two or more countries to reduce or eliminate trade barriers.
• Rare Earth Minerals: A set of seventeen metallic elements that are essential for many modern technologies.
• Ocus: A trilateral security pact between Australia, the United Kingdom, and the United States.
• Biosecurity Laws: Regulations designed to prevent the introduction and spread of pests and diseases.
• Pharmaceutical Benefit Scheme (PBS): The Australian Government's subsidy scheme for prescription medicines.
• Reciprocal Tariffs: Tariffs imposed by one country in response to tariffs imposed by another country.
• Carveouts: Exceptions or exemptions to a general rule or agreement.

1. US Inflation and Tariffs:

• The US inflation figures (2.4% annual inflation) for May didn't fully reflect the impact of tariffs because many tariffs hadn't been fully implemented yet.
• The tariffs are primarily being absorbed by American businesses (importers) rather than Chinese exporters or American consumers. This could impact corporate earnings.
• Imports constitute about 1/6th of the US GDP. A 15% increase in import prices due to tariffs could lead to a 2.5% rise in the average price level, potentially translating to 1.25% inflation for the next two years.
• Tariff-driven inflation differs from normal inflation because wages don't catch up, leading to a permanent reduction in purchasing power. A seemingly small 2.5% increase could have a significant cumulative impact over time (e.g., 50% over 20 years).
• Example: In 2018, tariffs on imported washing machines led to price increases for both imported and domestic washing machines (General Electric followed Samsung's price increase).

2. US-China Trade Deal (or Lack Thereof):

• The US and China had a meeting where they essentially agreed that their old agreement (a pause on tariffs for 90 days and a framework for discussions) was still their agreement.
• The original agreement was not a concrete deal but a framework for future discussions.
• The situation remains unresolved and hinges on the leaders (Xi Jinping and Donald Trump).

3. Implications for Australia:

• A US-China fallout could present both opportunities (increased demand for Australian goods) and risks (economic downturns in both countries).
• Rare earth minerals have become a key point of discussion.
• China currently has significant leverage in the rare earth minerals market, limiting US access.
• Australia's potential to provide a secure supply of rare earth minerals makes it strategically important to the US.

4. Australia-US Trade Relations:

• Australia already has a free trade agreement (FTA) with the US, but it contains politically sensitive exceptions.
• The US has expressed concerns about Australian beef imports, particularly regarding traceability.
• Australia buys more goods from the US than vice versa, making it a low-tariff country under reciprocal tariff scenarios.
• A 10% global tariff imposed by the US might not be detrimental to Australia and could even be beneficial.

5. The UK Trade Deal as a Case Study:

• The UK-US trade deal was announced prematurely and wasn't fully ready.
• The deal primarily involved a 10% tariff with minor carveouts that were largely symbolic.
• The carveouts were designed to allow both leaders to claim a victory.
• The deal included a lower tariff on British-made cars (Rolls-Royces, Bentleys, etc.), benefiting wealthier consumers.

6. Anthony Albanese and Donald Trump Meeting:

• Expectations for a breakthrough are low; the meeting is likely to be more of a "get to know you" session.
• Australia is unlikely to concede on issues like biosecurity laws and the Pharmaceutical Benefit Scheme (PBS).
• The critical minerals offer might be a point of negotiation.

7. Public Opinion in the US on Tariffs:

• Donald Trump has "lost the war of ideas" on tariffs.
• The American public is largely anti-tariff (2 to 1).
• Confidence in Trump's economic stewardship is low.
• The chaotic and inconsistent nature of the tariffs has undermined their support.

8. Notable Quotes:

• Justin Wolfers on the US-China trade deal: "They have negotiated a handshake agreement to seek sign off that a previously agreed agreement is still their agreed upon agreement... literally nothing happened."
• Justin Wolfers on the UK-US trade deal: "It's the two bastards colluding to delude their own populations."
• Justin Wolfers on the impact of tariffs: "Prices are going to go up 2 and a half% they're going to go up and not be compensated and that's going to happen forever."

9. Technical Terms and Concepts:

• Trumpology: A humorous term for trying to understand Donald Trump's thinking.
• Rare Earth Minerals: A set of seventeen metallic elements that are essential for many modern technologies.
• Tariffs: Taxes imposed on imported goods.

10. Synthesis/Conclusion:

The discussion revolves around the complexities of international trade, particularly the impact of US tariffs and trade deals on Australia. The US-China trade situation remains uncertain, while the existing US-Australia FTA has limitations. The potential for Australia to supply rare earth minerals to the US offers strategic importance. The UK trade deal serves as a cautionary tale, highlighting the potential for superficial agreements. Public opinion in the US is turning against tariffs, and their inflationary impact is a growing concern. Overall, Australia's position is relatively stable, and there is no urgent need to concede on key policy areas in trade negotiations with the US.