How Australian companies can prepare for US tariffs

Several short-term strategies, including flexible contracting, diversification, and nearshoring, can help the Australian economy mitigate the risks and costs of US tariffs. 

Australia exported 223,000 tonnes of steel and 83,000 tonnes of aluminium to the US last year. With the US imposing 25 per cent tariffs on steel and aluminium this month, Australian companies – particularly in these sectors – face tough decisions.  

While Australia seeks an exemption, the outcome remains uncertain amid evolving trade negotiations under the Trump administration. Whether or not Australia receives an exemption, the tariffs, effective 12 March, will add to global trade instability, forcing Australian exporters to adapt quickly or risk falling behind.  

Professor Maggie Dong, Head of the School of Marketing at UNSW Business School, stresses the need for proactive geopolitical risk management and strategic supply chain planning. She says Australia faces a growing dilemma: while its economy relies heavily on Asian markets like China, it also feels pressure to align politically with the US.  

“This tension between economic interests and security alliances presents significant challenges. With the US and China already engaged in a global trade war, Australian companies must prepare for heightened trade tensions, increased uncertainty, and higher prices,” says Prof. Dong. 

To navigate these risks, Prof. Dong highlights several short-term strategies, including flexible contracting, nearshoring, diversification, and financial hedging, that can help businesses mitigate the impact of tariffs and safeguard their global competitiveness.  

“Drastic changes to the global supply chain are costly and take time – sometimes years to take effect. In the meantime, short-term strategies like hedging – offsetting investment losses by taking an opposing position – can be helpful,” she says. 

The impact of US tariffs on global trade

Prof. Dong warns US tariff changes pressure Australian companies by increasing costs, disrupting supply chains, and imposing new trade restrictions.   

With Trump issuing over 70 executive orders in just over 30 days, she says “uncertainty has become the new certainty.” 

Since 2005, the Australia-United States Free Trade Agreement has eliminated tariffs on many Australian exports to the US and reduced tariffs on others. However, the recent changes have introduced significant business risks for exporters reliant on the US market.  

In addition to tariffs on aluminium and steel, US President Donald Trump signed executive orders imposing a 25% tariff on all imports from Canada and Mexico. Due to border enforcement talks, these tariffs have been delayed until 4 March. The White House also placed a 10% tariff on Chinese imports, citing national security concerns, including illegal migration and fentanyl trafficking. 

Growing concerns that Chinese and Canadian exporters may implement retaliatory tariffs have also exacerbated concerns across Australia’s manufacturing sector and beyond. For example, the Reserve Bank of Australia (RBA) says it is closely monitoring the potential economic effects of US tariffs on Australian exports, as these trade policies may impact inflation and interest rates. 

Prof. Dong, who is currently researching the links between tariffs and international trade (her past research examines geopolitical risks and supply chain resilience), outlines steps Australian companies can take to protect their operations. 

Short-term strategies to mitigate the impact of US tariffs on Australian companies

1. Flexible contracting

Flexible contracting is one potential strategic response for Australian companies to mitigate the impact of US tariffs. By adopting flexible contracts, companies can adjust their terms and pricing more quickly in response to changing external factors, such as tariffs or other trade policies. These short-term agreements, or “flexible contracts”, involve negotiating adaptable agreements to accommodate price fluctuations. 

“This kind of flexible contract usually includes a clause allowing for quick renegotiation in the event of some unpredicted situations, like tariffs or supply shocks,” says Prof. Dong. 

“So, I would say, especially for this Trump tariff, I think the short-term adjustments that focus on flexible contracting would be the first step.” 

Flexible contracting may also allow companies to explore alternative markets or reconfigure their business models to reduce reliance on the US market, making them less vulnerable to changes in US trade policies.  

But she emphasises the need to act quickly – Australian companies must build flexibility into contracts before the 12 March deadline to take advantage of this opportunity. 

“Companies have a limited time to strike those agreements with international trade partners before the tariffs kick in,” she says. 

2. Diversification

According to Prof. Dong, businesses can reduce political risks and build resilience by adopting multiple market relationships, reducing reliance on US export markets to lessen exposure. For example, she suggests that Australian companies diversify their export markets beyond one or two trading partners.  

She says this is necessary because of the new tariff policy and the “growing trend of local protectionism”. Recent developments indicate that the current geopolitical landscape is shifting towards local protectionism, where countries increasingly use tariffs, import quotas, and subsidies to shield domestic industries from foreign competition. This trend is often seen as a response to rising global trade tensions and the desire to prioritise national economic interests. 

According to Prof. Dong, local protectionism drives up costs for imported goods and encourages consumers to buy locally, supporting domestic businesses and jobs. As protectionism reshapes global trade, she suggests Australian companies prioritise supply chain resilience, risk mitigation, and diversification to stay competitive in an unpredictable market. 

“Especially for multinationals, they should avoid over-reliance on a single source or just a couple of markets to better absorb the shocks of tariffs or trade barriers,” she says. 

3. Nearshoring and regionalisation

Another effective strategy is shifting production closer to home to reduce reliance on US-dependent supply chains.  

Nearshoring is a form of offshoring in which an organisation sources from a neighbouring country. Companies with a significant US market may consider nearshoring or reshoring their suppliers, while those prioritising European or Asia-Pacific markets may benefit from regionalisation.  

Prof. Dong notes that firms must evaluate their strategic priorities and consider political relationships as the world becomes more polarised. Strengthening digital capabilities to predict supply chain disruptions is also key to long-term resilience. 

“Australia’s strategic location at the crossroads of the Indo-Pacific region puts it in a unique position to strengthen trade alliances and mitigate the impact of US tariff policies,” she says. 

“By deepening engagements with growing Asian economies, Australia can diversify export markets and leverage its regional influence for better trade deals.” 

4. Financial hedging

Prof. Dong says Australian companies can use supply chain finance solutions to help manage tariff-related costs. By placing orders earlier, for example, businesses can mitigate the impact of higher costs caused by tariffs. She says companies can use currency and commodity hedging strategies to manage tariff-related expenses. 

“In global supply chains, currency fluctuations compound the volatility caused by tariffs. Using multi-currency loans sometimes helps businesses manage these risks,” says Prof. Dong.  

“Another strategy is commodity hedging – leveraging commodity futures and options to lock in prices and minimise exposure to sudden cost spikes.” 

However, she notes that these financial strategies can be complex and require careful consideration. 

Government support can boost Australian exports

Finally, Prof. Dong emphasises that policymakers are key to keeping the economy globally competitive. Australian Prime Minister Anthony Albanese has also stressed the need for Australian exporters to remain competitive despite global trade challenges. 

“As long as our products offer added-value technology that others can’t easily compete with, we’re not just competing on price,” says Prof. Dong. 

“This creates a competitive advantage for our firms and industry sector, helping offset the impact of US tariffs.”