Tariff Fortress: Australia's Costly Economic Lesson

So, you hear whispers about fixing the American economy? Perhaps not a "simple cheat code," as that's more a turn of phrase than a common term, but something that sounds seductively easy? The idea floating around is disarmingly straightforward: just slap a hefty tax on goods from certain countries. Poof! Problems solved, or so the story goes.

Insights

• High tariffs in 1970s-80s Australia made imported goods, like color televisions, extraordinarily expensive for consumers, often double or triple international prices.
• Australia dismantled its high tariff system from the late 1980s through the 1990s, leading to significantly cheaper consumer goods but also the decline of many domestic manufacturing industries.
• The claim that foreign countries "pay" for tariffs is misleading; tariffs are taxes typically paid by importers and often passed on to domestic consumers through higher prices.
• Economists broadly agree that while tariffs can offer temporary protection to specific industries, they generally lead to higher costs for consumers and can negatively impact overall economic efficiency and employment in other sectors.
• Understanding the historical impact of tariffs, such as Australia's experience, is key for individuals to anticipate potential price increases and economic shifts if similar broad-based tariffs are implemented today.

The Tariff Siren Song

The notion is simple enough. Drop a hefty tax, say 25% – a figure once proposed by Donald Trump for Chinese goods, though as of 2025, proposals have included tariffs up to 60% on all Chinese imports – on products from countries like China. Suddenly, everything changes.

Someone even framed it to me this way: "It's really the messenger, isn't it?" One person might say, "We're going to tax you 25%," all polite-like. Another might lean in and growl, "Listen, you... we're going to tax you 25%!"

The feeling is clear: Americans pay taxes, so why shouldn't foreign companies contribute if they want to sell their goods in the U.S. market? If they want to manufacture items in their own countries and sell them in ours, they can. But they'll pay for that access.

This isn't a new melody. Former President Trump, for example, has been a long-time proponent. While he has advocated for tariffs for decades, his most significant tariff actions occurred during his presidency (2017-2021), with renewed, and sometimes bolder, proposals surfacing in the 2024 campaign.

He suggests a year of this kind of tax and America's foreign debt to China could diminish. Plus, manufacturing jobs might magically reappear on U.S. soil as companies scramble to avoid the levy. "You know what? They're going to make cars here," is the promise.

It's even pitched as a geopolitical tool – need Mexico to cooperate on immigration? "If Mexico doesn't give the help, that's okay. We're going to tariff their cars."

Let's call it what it is: a tariff, a tax on imported goods. And the attachment to this idea isn't fleeting. During his first term, Trump experimented with tariffs, but never quite unleashed the full 25% across-the-board on Chinese goods.

Now, the talk is more expansive: 25% on Mexico, Canada, even the European Union. "We have a goods trade deficit with the European Union of approximately $218 billion as of 2023. They treat us very, very badly. So they're going to be in for tariffs."

He's even mused about a universal tariff on all imported goods. This, we're told, will make America rich again, stop drugs, and balance the federal budget. Quite the cure-all, wouldn't you say?

Here’s an interesting point. America, like most Western nations, has operated with relatively low tariffs for many years. The U.S. average applied tariff rate has been below 5% since the 1970s, with most developed nations maintaining low tariffs since the post-World War II era.

Most people alive today don't remember what a high-tariff world actually looks like. This makes it challenging for economists – virtually all of whom oppose these grand tariff plans – to argue against them with recent, widespread lived experience in the U.S.

But there's an ally, a friendly nation, that has a more recent memory of life behind a tariff wall. A place where, for a significant period, tariff protection was a generally accepted policy.

That place? Australia.

While others lowered their tariffs post-World War II, Australia kept theirs in place well into the 1990s. So, what was it like? And what lessons can we draw for America and the global economy if similar policies are enacted today?

The new U.S. presidential rhetoric places a lot of faith in tariffs. It's the supposed key to unlocking all sorts of economic benefits, and, critically, it's claimed it won't raise your cost of living. Is that even plausible?

A Trip Down Under: When Tariffs Ruled

Let's rewind to mid-1974 Australia. Color television was on the horizon, a good 20 years after Americans got it. As one contemporary report put it, "Experience shows that color is like a lot of other things. Once you've had it, you can't do without it."

An ABC reporter hit the streets of Sydney, asking a simple question: "If color television sets cost $1,000, would you buy one?"

The responses? "Not likely." "Very doubtful, is it?" "Probably not, if it was $1,000, no." Literally, no one was enthusiastic.

This wasn't hypothetical. Prime Minister Gough Whitlam had promised color TV, but the cheapest sets were expected to cost around $1,000 AUD. That was about nine weeks' average pay back then.

Think about that: the equivalent of shelling out roughly $9,750 AUD in early 2024 money for a 22-inch TV. This was more than double the price in New York, London, or Vancouver.

One person interviewed lamented, "I wouldn't even buy one for five, six hundred. I lived in Canada for a while. I could get one there for about 350 Canadian." This is a historical anecdote, reflecting the price differences of the time.

The government had a problem. They'd promised something practically no one could afford. "I don't think the average person nowadays could afford it, really."

So, what was happening? Why the sky-high prices?

The answer lay with companies like AWA (Amalgamated Wireless Australasia). AWA was a titan of Australian electronics, active since 1913, its headquarters once the tallest building in Australia. And it grew with a helping hand from the government, which believed a domestic electronics industry was a national asset.

Your 2024 capitalist mind might be screaming, "Why did AWA need help? If their products were good, people would buy them!"

Well, manufacturing benefits from economies of scale. The more you make, the cheaper each unit becomes. In the 1970s, Australia's population was just 13 million.

Tiny. Australian manufacturers of cars, shoes, clothes, furniture, canned food, chemicals, and ships simply couldn't compete on volume with giants in Asia, America, and Europe. Asian competitors were a particular challenge, with far lower wages.

What did the Australian government do? Not the aggressive approach. More like the polite messenger: "We're going to tax you 25%." Actually, much more than that in some cases.

Imagine shopping for a black-and-white TV back then. An Australian-made AWA set is $300. Next to it, a Japanese TV for $336. Seems like a small difference, right?

But here's the reality: without the government's whopping 180% tariff (as of 1973), that Japanese TV would have cost you just $120. They could make them far cheaper in Japan.

Thanks to the Australian government, you'd likely ignore the Japanese bargain, buy the AWA set for $300, and the government would collect $216 in tariff revenue.

You got a TV, and Australia maintained a manufacturing industry. But everything was way more expensive. Foreign companies could sidestep this by setting up factories in Australia, which many did.

By the mid-1970s, the government was in a bind. Tariffs meant Australians often had little choice but to buy expensive local goods. Australia was described by some observers at the time as one of the last developed countries to maintain a high tariff policy, an approach increasingly questioned in Europe and America.

These tariffs did bring in government revenue, though as a share of GDP, this revenue had declined from earlier in the 20th century to around 1-2% by the 1980s. They also propped up thousands of jobs. It was an economic trade-off.

The same kind of trade-off being discussed today. Some might say tariffs will "make us rich as hell."

The looming color TV switch, however, threw a harsh spotlight on the cost of these tariffs for ordinary Australians. In 1973, those TV tariffs were still at that eye-watering 180%. Prime Minister Whitlam, facing reality, asked the National Tariff Board for a review. By the time color TV launched, he'd slashed the tariff to 35%.

The Great Unraveling: When the Walls Came Down

Australians went wild for color TV. Reports from the time indicated that "the Australian television market is coming home to color at a far faster rate than the manufacturing industry predicted." Despite the still-high prices, within a year, one in five Australian homes had a color set. It was among the fastest adoption rates globally.

But this came at a cost. That 35% tariff? Not nearly enough to save the local electronics industry. By the end of 1975, AWA had laid off 2,000 factory workers. The industry was in a steep decline.

This was a sign of things to come. Throughout the 80s and 90s, one by one, the tariffs were dismantled. The Hawke Labor government, starting in 1988, put in place a strategy of gradual, phased reductions, a plan extended in 1991 to continue annual cuts until 2000. This was a far more sweeping reform than previous piecemeal efforts.

And one by one, the industries they had sheltered began to shrink or disappear. Some producers began to wonder whether Australia truly wanted a manufacturing sector at all.

By the end of the 1990s, Australian tariffs had plummeted to an average of around 5%, and as of 2025, Australia's average applied MFN (Most Favoured Nation) tariff is approximately 2.5%. Our manufacturing industry? Largely transformed. Australia just doesn't make as many things domestically anymore because other countries can often do it much cheaper.

For consumers, this was a significant change. Food, clothes, appliances, furniture, cars – all became vastly cheaper than ever before. The automotive sector is a stark example. Automotive tariff protection peaked at 57.5% in the early 1980s. By 2010, it was down to 5%.

The number of companies assembling vehicles dwindled from over ten at its peak to just three (Ford, Toyota, Holden) by 2016. By the end of 2017, all local car manufacturing had ceased.

Is all this "good"? Is having three cheap TVs in your house better than having TV factories providing jobs? That's a complex discussion, a matter of perspective with strong arguments on both sides. But this is the economic reality that Australia, and indeed most developed countries, chose.

Until, perhaps, now, with new discussions in places like the U.S.

Tariffs: The Politician's Panacea vs. Economic Reality

Back in the early stages of the 2016 election campaign, Donald Trump promised to bring manufacturing jobs back. "I'll be the greatest jobs president that God ever created. I'll take them back from China, from Japan, from Mexico." His tool of choice? Tariffs on things like cars.

But wouldn't that increase car prices? "No. You know what? They're going to make cars here. And maybe a person will buy fewer cars over the course of a lifetime. Who cares?"

Well, car companies care. You, the car buyer, probably care. But fair enough. That was one version of the argument. It acknowledged prices might go up, people might buy less, but hey, at least they'd be American-made cars. That's a policy, similar in spirit to 20th-century Australia: yes, we pay more, but our people are making them. A win, of sorts, for some.

Then came the White House years, and the narrative shifted dramatically. Suddenly, tariffs weren't a cost to be borne for domestic industry; they were presented as a tax on foreign countries, a source of revenue.

Remember the 2018 tariffs on some Chinese products? The claim was, "We've taxed China on $300 billion worth of goods and products being sold into our country. And China eats it because they have to pay it."

Here's the unvarnished truth: They very explicitly do not have to pay it. The importers – American businesses – are the ones paying the tariff at the border. These costs are then either absorbed by those businesses (squeezing their profits) or, more commonly, passed on to consumers. That's you.

The assertion was, "So we're taking in many billions of dollars. There's been absolutely no inflation, and frankly, it hasn't cost our consumer anything. It cost China."

That's demonstrably false. A 2019 study by economists Amiti, Redding, and Weinstein estimated it cost American consumers and businesses about $72 billion in the first year alone through higher prices and efficiency losses. What about the jobs, the revived industries? In many cases, it backfired.

The Federal Reserve found that Trump's 25% tariff on steel, for instance, raised costs for American factories reliant on imported steel and, according to their 2019 analysis, was associated with a net loss of manufacturing jobs linked to steel users, outweighing gains in steel production.

The global economy is a tangled web. Almost every complex product, be it a car or a TV, relies on components sourced from numerous countries. Tax one part, and the entire supply chain can become uneconomical.

As of 2025, the consensus among economists remains that tariffs generally increase consumer prices and reduce overall economic welfare, even if they offer temporary relief to specific protected sectors. But such analysis is sometimes dismissed with claims that "The anti-tariff people, many of them, I believe, honestly work for these other countries in some form."

And now, the latest iteration: "Smart tariffs will not create inflation. They will combat inflation."

This is... a bold claim. Tariffs generally increase the prices of imported goods, which can contribute to inflation, though the overall inflationary impact depends on broader economic conditions and monetary policy. They are literally intended to increase the price of imported goods to make domestically produced goods more competitive.

The idea that "Foreign nations will pay us hundreds of billions of dollars, reducing the deficit and driving inflation down" is not how these economic tools typically function. U.S. inflation did remain low for much of the 2017-2020 period, but this was due to a combination of multiple global and domestic factors, not solely tariffs.

I am not here to say all tariffs are inherently misguided in every circumstance. But foreign nations do not pay them in the way it's often sold. And they do not magically drive inflation down. That's not how this works. That's not how any of this works.

"The stock market is filled with individuals who know the price of everything, but the value of nothing."

Philip Fisher Investor and Author

Analysis

The "Golden Lobby Trump" version of tariffs, as described in the earlier campaign rhetoric, at least had a somewhat understandable, if painful, political logic. The loss of manufacturing jobs in America has undeniably contributed to economic disparities. In 1980, Americans with higher degrees earned about 40% more than those without a high school diploma.

As of 2024, according to the U.S. Bureau of Labor Statistics, the earnings premium for Americans with a bachelor's degree or higher compared to those with only a high school diploma is approximately 75-80%. These are the people who have felt left behind, and tariffs are presented as their salvation.

If a government were to meticulously target tariffs at specific products and industries, it might incentivize some companies to open factories domestically. It would likely mean higher prices for those specific products, a cost some citizens might be willing to pay for a perceived return of those jobs.

This is the classic protectionist argument: shield infant industries or strategically vital sectors, accepting higher consumer costs as a trade-off for domestic production and employment. Australia trod this path for decades.

But the 2025 version of tariffs being floated – the broad, sweeping "if you don't make your product in America... you will have to pay a tariff" – this is a different beast entirely. This isn't surgical protectionism. It's more like economic carpet bombing.

If this goes through, it will trigger a fundamental shift in how the U.S. economy operates, much like the dismantling of tariffs in Australia fundamentally changed its economic landscape. Prices on many things will rise.

The extent of these price increases would depend on the scope and scale of the tariffs implemented, but your household budget will almost certainly feel the impact. Consider televisions again. As of 2025, the majority of TVs sold in the U.S. are assembled in Mexico and Vietnam, with components sourced globally.

China remains a significant source of components and some finished goods but is no longer the dominant direct supplier of assembled TVs to the U.S. due to previous tariffs and supply chain shifts. New, broad tariffs would hit these supply chains hard. Guess what happens to the price of your next TV?

The world is far more interconnected now than it was during Australia's tariff fortress era. And the United States isn't just any economy; it's the largest. The ripple effects of such tariffs will be global. Retaliation from other countries is not just possible, but probable, leading to trade wars that harm exporters and further disrupt supply chains.

Given how much global trade flows through or to the U.S., these policies will impact all of us, everywhere. The Australian experience showed that while protectionism can preserve certain jobs for a time, it does so at a high cost to consumers and overall economic dynamism.

When those protections were removed, there was a painful adjustment period, but it also paved the way for a more efficient allocation of resources and lower prices for consumers.

Final Thoughts

So, what's the approach here? How do you, the individual investor, the concerned citizen, the everyday consumer, prepare for this potential economic shift?

First, understand the game. Tariffs are not free money from foreigners. They are a tax, primarily paid by domestic consumers and businesses through higher prices or reduced profits. Anyone telling you otherwise is either misinformed or selling you a fantasy.

Second, anticipate the impact. If broad tariffs are implemented, expect price increases on a wide range of imported goods. This isn't complex theory; it's basic economics. Your cost of living will likely go up. Plan accordingly.

Third, look for the second-order effects. Which industries will be hit hardest by increased input costs? Which might see a temporary, artificial boost from protectionism, and how sustainable is that? Remember AWA in Australia – protection can delay economic adjustments, but it rarely overcomes fundamental economic forces forever.

This isn't about predicting the future with a crystal ball. It's about understanding the mechanics of policy and its probable consequences.

It's about recognizing that economic policies have winners and losers, and often, the bill lands squarely on your kitchen table.

The Australian experience is a potent reminder. The consensus among economists and government reports is that tariff reductions contributed to increased productivity and lower prices in Australia, but the transition involved significant adjustment costs, job losses in protected sectors, and a fundamental reshaping of their industrial base.

Remember the color TVs that, in 1974 Australia, cost the equivalent of nine weeks' wages (around $9,750 AUD in early 2024 money). Remember who actually pays when these policies are enacted.

The economic playing field is constantly changing. Grand pronouncements and simplistic solutions often mask complex realities.

Your best defense? Clear-eyed understanding, a healthy dose of skepticism, and a plan that accounts for the true cost of these grand economic experiments.

Stay informed. Think critically. And prepare for potential economic turbulence.

Did You Know?

Before Australia began significantly reducing its tariffs in the late 1980s, the Industries Assistance Commission (a government body) estimated that protectionist policies were costing Australian consumers billions of dollars annually in higher prices, effectively acting as a hidden tax that disproportionately affected lower-income households.

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The information provided here is for general informational purposes only, and does not constitute financial, investment, tax, or legal advice. It is essential to consult with a qualified professional before making any financial decisions. What I, and many industry experts, often consider involves a diversified approach and a long-term perspective, but your specific circumstances are unique and require tailored advice. Past performance is not indicative of future results.