US tariffs implemented in April have continued to affect Australian businesses, prompting a reassessment of operational strategies and leading to varied economic outcomes. While an anticipated US Supreme Court ruling will address the tariffs' legality, expert projections for 2026 indicate a complex economic landscape characterized by shifting trade dynamics, evolving monetary policies, and a mix of domestic and global risks and opportunities.
US Tariffs and Australian Business Adaptation
US tariffs, initially introduced in April, have resulted in an eight-month period of adjustment for Australian businesses, with the US Supreme Court expected to rule on their legality this month. Trade expert Felicity Deane of QUT has suggested that a determination of illegality could obligate the US to reimburse companies that have paid the tariffs.
Australian fashion brands, toy manufacturers, and other businesses have been evaluating their operations within the United States. The Nashie, an Australian sun protection brand, reported paying higher tariffs on garments manufactured in China and observed reduced demand in the US market. Tom Wilson, co-founder of The Nashie, attributed this to consumer apprehension, coinciding with US data indicating declining consumer confidence. Beatrice Toh, founder of the Australian toy brand HeyDoodle, reported a decrease in sales and customer confidence, leading to some wholesale stockist closures. Mr. Wilson characterized the tariff situation as unpredictable, noting that consistent high tariffs can be managed, but unpredictability hinders business.
The removal of the 'de minimis' exemption in 2025 significantly impacted Australian exporters, particularly online retail. This change, which had previously waived taxes on smaller-value goods, led postal carriers, including Australia Post, to temporarily suspend most shipping services to the US. Fashion brand Apero, which had derived up to 30 percent of its revenue from the US market, reported being affected by this change. Laz Smith, co-founder of Apero, stated the company had not received substantial support from Austrade or the Australian government in navigating this period.
In April, the Australian government pledged $50 million to support exporters, with further details emerging in 2025 under the Accessing New Markets Initiative (ANMI). This funding aims to connect national industry bodies with Austrade. While initiatives have supported fresh produce growers and fine food brands, some Australian companies have expressed concerns regarding their interactions with Austrade. Mr. Wilson stated his view that the government considers this a past issue and that businesses are managing independently. Trade Minister Don Farrell reported that ANMI delivered five business missions within the first 100 days following the government's re-election in May, with additional program details to be announced. Conversely, the swimwear brand Bond Eye reported finding support through a fashion industry lobby group, with founder Steve Philpott indicating the company absorbed costs to maintain loyalty to factories and supply chain partnerships.
Global Trade Dynamics and Unexpected Outcomes
Contrary to initial fears of a global trade war and projections of up to $27 billion (1% of GDP) collateral damage to the Australian economy following the US "liberation day" tariffs in April 2025, the global economy demonstrated resilience. Commonwealth Bank's chief economist, Luke Yeaman, observed in October a global shift towards increased trade protectionism, populism, and self-sufficiency. However, countries adapted to US trade policies, finding alternative markets or temporary solutions.
Australia was identified by Yeaman as among the countries experiencing positive outcomes. Australia's goods exports to the United States doubled from $16.8 billion in a comparable period of 2024 to $33.2 billion in 2025. This increase was primarily driven by a surge in beef and gold sales. Beef sales to the US rose from under $3 billion in 2024 to $4.2 billion in 2025, partially aided by drought conditions affecting American beef producers. Gold exports saw a significant increase from $1.2 billion to $14.6 billion, partly attributed to fears associated with US policies contributing to a nearly 70% rise in gold prices. The baseline 10% American tariff on Australian imports was less severe compared to those imposed on many other countries, potentially making Australian goods more competitive. US President Trump later announced the removal of tariffs on beef and other agricultural products in November 2025.
ANZ's chief economist, Richard Yetsenga, attributed this global resilience to the redistribution of trade and production rather than a destruction of demand. Experts also noted that countries, including Europe and Japan, generally avoided retaliatory measures, preventing worst-case global trade war scenarios. Warwick McKibbin, an ANU economics professor, characterized the tariff war as "more show than substance."
Professor Deane noted that while 2025 presented an unusual year for global trade, the US tariff situation appears to be stabilizing, with recent actions by the US president including an offer for Italian pasta brands and a delay in taxes on imported furniture. Professor Deane suggested that inflation might also have influenced tariff decisions. Her advice for Australian exporters for 2025 was to await the US Supreme Court's decision on tariffs and maintain adaptability.
Australian Economic Outlook for 2026
Economic and financial commentators are observing key indicators for 2026.
Inflation and Interest Rates
The December quarter's Consumer Price Index (CPI), to be released on January 28, is a critical indicator for the Reserve Bank of Australia's (RBA) interest rate deliberations in early February, as stated by RBA Governor Michele Bullock. The RBA is monitoring for signs of a broader pick-up in inflation. Following these statements and subsequent inflation data, financial markets adjusted their expectations regarding the official cash rate of 3.6 percent. Current market analysis suggests a nearly 40 percent probability of an RBA rate increase in February, with a high probability by June, and a greater than 50 percent chance of two increases by the end of 2026. Higher interest rates are anticipated as early as February. For Australia, 2025 concluded with improved growth but also a rise in inflation. The economy is projected to expand by 2.3% in 2025 and 2.2% in 2026.
Unemployment Trends
Australia's unemployment rate, which reached 3.4 percent in October 2022, increased to 4.3 percent in November 2025. The RBA projects the unemployment rate will need to stabilize around 4.4 percent to manage inflation. This figure remains below the average of 6.3 percent observed between 1993 and 2020. Unemployment is not projected to significantly increase in 2026.
Broader Socio-Economic and Market Trends
Intergenerational Inequality
Intergenerational inequality has been identified as a major issue, encompassing younger generations' debt burdens, the costs associated with climate change, and housing affordability challenges. Areas for potential policy reform include tax settings, social benefits, and the differential treatment of income from labor versus assets.
Electrification Acceleration
The acceleration of electrification continues, with electric vehicles (EVs) comprising approximately 10 percent of new vehicle sales. This trend is supported by a review of the government's Electric Car Discount and an increase in available EV models. The second-hand EV market is also expanding. Infrastructure developments, such as increased street charging by councils and proposed mandates for energy retailers to offer free midday power, aim to support broader EV adoption and solar energy benefits.
Investment Strategies
In an environment where central banks may be constrained by inflation, active investment strategies, particularly in specific sectors like artificial intelligence (AI), are anticipated to gain importance. Citi analysts anticipate that AI's market dominance may decrease in 2026, with cyclical stocks (e.g., miners) and financial stocks potentially outperforming consumer staples. Warwick McKibbin highlighted the significant boost to the US economy and stock market from the AI investment boom, while warning that the AI boom could be a bubble.
Global Economic Influences and Risks
The global economic environment is expected to remain volatile. On December 19, the Bank of Japan (BoJ) increased its benchmark interest rate by 0.25 percentage points to 0.75 percent, aiming for a 2 percent inflation target. This action led to the Japan 10-year government bond yield surpassing 2 percent, reaching its highest level since 1995. This development raises questions about the financial viability of the "carry trade" and potential capital flows back to Japan, which could affect liquidity in markets like Wall Street and Australian superannuation funds with US market exposure.
While the global economy has demonstrated resilience, the International Monetary Fund (IMF) has expressed concerns about an AI-led stock market bust more than US policymaking. RBA deputy governor Andrew Hauser has compared the long-term effects of tariffs to Brexit, suggesting a gradual undermining of sustainable growth and economic fundamentals. Professor McKibbin echoed this, stating that the global system, institutions, and security arrangements are being undermined. Jenny Gordon, former chief economist at the Department of Foreign Affairs and Trade, noted that while the world has managed, 2026 could be "very interesting," emphasizing the potential for continued boundary-pushing by the US president and the role of China's export surpluses.
Luke Yeaman foresees a potentially positive outlook for 2026, led by the US, possibly buoyed by another round of US tax cuts despite structural budget deficits. However, substantial risks include South China Sea tensions, an AI market correction, and potential political influence over the US Federal Reserve.