Federal Budget 2025: Threat of Trump tariffs turns Budget into a red flag

A grim Federal Budget included repeated warnings about “storm clouds” on the economic horizon, with Jim Chalmers conceding “the whole world has changed”.

The Treasurer said Australia must change too.

“The emphasis is on making ourselves an indispensable part of these global supply chains,” he said.

He didn’t mention Donald Trump by name during his televised budget address, but the threat of a global trade war loomed large.

“Trade disruptions are rising,” the Treasurer said.

“China’s growth is slowing, war is still raging in Europe, and a ceasefire in the Middle East is breaking down.”

The Budget papers went into more detail, warning that the outlook is “uncertain and volatile” and that tit-for-tat tariffs could interrupt the “soft landing” the Government has been aiming for on inflation.

“Policy uncertainty related to trade tensions could weigh on domestic investment and employment,” it said.

“The use of tariffs by major trading partners could lead to higher import prices and temporarily higher inflation and lower growth.”

But Treasury said the falling Australian dollar could partially offset the impact on exports.

“Australian firms have also demonstrated that they are very adept at finding alternative markets,” the fiscal outlook said.

A 25 per cent tariff on all US imports of durable manufacturing goods was tested, with Treasury officials finding a “modest” impact would be “amplified”, and double the hit on real GDP, if Australia retaliated.

Instead, the Budget included a new $20 million “Buy Australian” campaign to support local producers to weather the fallout.

The campaign to “encourage consumers to buy Australian-made products” is funded within the Department of Prime Minister and Cabinet, paving the way for lots of campaign photo opportunities eating vegemite while wearing an Akubra.

There was little more detail, but the “Buy Australia” plan was welcomed by economists, as a crucial boost to help local manufacturing survive.

“The budget papers noted the risks posed by US tariffs could weigh on global growth and drive higher import prices, higher inflation and slower growth,” Chamber of Commerce and Industry WA chief economist Aaron Morey said.

“It was also encouraging to see some modest funding to boost Australia’s trade diversification agenda, with $16 million going towards an Australia-India Trade and Investment Accelerator fund.

“The best way to navigate out of fiscal challenges is through economic growth.”

Treasury echoed recent warnings from WA industry experts that the flow-on effect from American tariffs on China was likely to have a bigger impact on Australia.

Already “subdued” global growth is predicted to slow further, to reach 1990s levels of just three and a quarter per cent.

India has overtaken China as the fastest growing economy, but its rate is also slowing to six and a half per cent in 2026.

“The global economy is taking a turn for the worse,” Dr Chalmers said.

“Australia is neither uniquely impacted nor immune from these pressures, but we are among the best placed to navigate them.

“We’re emerging from this spike in global inflation in better shape than almost any other advanced economy.”

Australia’s plea to be exempt from President Trump’s 25 per cent tariff imposed on all steel and aluminium was rejected in February, despite lobbying efforts.

The White House is due to announce another round of tariffs on April 2, with concerns Australia’s agriculture and pharmaceutical sectors could be targeted.

In a joint statement, Prime Minister Anthony Albanese and Dr Chalmers said the best defence was a strong economy.

“It’s clear the rules that underpinned global economic engagement for more than 40 years are being rewritten,” they said.

“Our economic plan is all about ensuring Australians are beneficiaries, not victims, of this churn and change.”