Productivity Commission says Australia can weather tariffs, but warns a global trade war would have “serious consequences”

Australia stands to receive small but positive benefits from Donald Trump’s tariff war, however, a broader trade war would have “serious consequences”, a new report has found. The latest Productivity Commission Trade and Assistance Review, released on Tuesday, said global uncertainty had been at its highest levels in 2025 since the Covid-19 pandemic, with the volatility created by new and increasing tariffs a “central feature” in policy changes. The report said initially Australia’s GDP would benefit from a boost of 0.37 per cent as a result of US imports from Australia being “relatively cheaper” due to the lower tariffs placed on Australian goods. Lowered US demand also “decreases the global price of imports from other countries” which would make goods cheaper to import globally. Although Australia’s exports to the US currently face levies of 50 per cent for steel, 25 per cent for aluminium and 10 per cent on all other goods, they are not expected to increase following Mr Trump’s July 9 negotiation deadline. Despite this, Anthony Albanese has said he wants to see the tariffs removed, amid increasing pressure on Labor to secure a face-to-face meeting with the US President. Productivity Commission deputy chair Alex Robson said the ensuing global uncertainty could “affect living standards in Australia and around the world”. “Uncertainty is a handbrake on investment – when businesses are uncertain about the future, they are less likely to invest,” Dr Robson said. “Further retaliatory escalation could spiral into a broader trade war, which would bring serious consequences for Australia and the world.” The report also backed Labor’s policy to not implement reciprocal tariffs, with the Productivity Commission saying Australia “should not retaliate with its own tariffs to tariffs imposed by other trading partners,” which holds the “risk of further escalation and ultimately worse outcomes for Australia”. “While we cannot predict or control the trade policies of other countries, we can calibrate our own response to maximise the benefits to Australia given the policies of other countries,” it said. “Moreover, by advocating for free trade with like-minded international partners, we can reduce the risk that retaliation spirals into a broader trade war that leads to worse outcomes for Australia.” Treasurer Jim Chalmers said the report confirmed that Australia was “well placed and well prepared for all the uncertainty in the global economy”. “The key message from the PC Review is that Australia is best served by continuing to advocate for free and fair trade, and that’s exactly what we’ve done,” he said. The Treasurer also indicated support for the report’s call to abolish a further 315 “urgent priority” nuisance tariffs, levies which increase compliance costs for businesses with little revenue benefit. This follows the government’s first-term action on removing 457 tariffs on low-value goods like toothbrushes, clothing, sanitary products and dishwashers also boost productivity. While the PC said removing all 2640 import tariffs could grow Australia’s economy between $3bn to $7bn, while reducing consumer costs by 0.13 per cent to 0.25 per cent, it acknowledged this may be prevented due to “political constraints”. However Mr Chalmers flagged further reform was “part of our substantial productivity agenda”. The report comes as Labor is set to hold a productivity roundtable in August, which will gather business leaders, unions and government to debate and discuss further reform. Mr Chalmers said the conversations would further boost productivity and strengthen Australia’s resilience to ensure the nation benefits from “all the churn and change in the world”. Speaking on Friday, the Prime Minister said he didn’t want to pre-empt outcomes from the roundtable, saying it would “shut down the debate before you’ve actually got people in the room”. “The worst that can happen is that people develop relationships because they’ve spent a couple of days together,” he said.