By Vaibhav Tandon

The words that we choose carry weight.  Even an offhanded comment, uttered without malicious intent, can accidentally hurt someone else.  Tariffs work in a similar way.

The new American tariff regime aims to deliver pain to some of the alleged “worst offenders” in trade relations with the United States.  But the bilateral tariffs could cause great harm to bystander nations.

The Land Down Under is one such market.  Australia has escaped the worst of Washington’s wrath; it is facing the minimum tariff of “only” 10%, thanks to its trade deficit with the United States.  The U.S is not one of the top destinations for Australian products and accounts for only about 4% of total goods exports.  Pharmaceuticals and critical minerals are among Australia’s top exports to the United States, categories currently exempt from tariffs.  Therefore, the direct impact of duties will be negligible.

But the knock-on effects for Australia from trade frictions are poised to be far greater.  Trade plays a significant role in Australia’s economy, equivalent to almost 50% of gross domestic product.  Australia is the most commodity-dependent major economy of the world.  Resources like iron ore, coal and natural gas are its leading sources of external revenues.  These materials account for almost 60% of its total goods exports.

Many of these go to China, accounting for over one-third of Australian exports.  Massive increases in U.S. levies on Chinese products will pile more pressure on the world’s factory.  Weaker demand from China will not only reduce imports from countries like Australia, but will also exert downward pressure on global commodity prices.

U.S. trade actions have the potential to create deep wounds, with many nations caught in the crossfire between trading partners.  The Australians may be at a loss for words to describe the pain.