Australian businesses on the brink could go bust if US tariffs become the straw that breaks the camel’s back, as economic management comes into focus ahead of the election.

Businesses are already struggling to pay their trading partners due to tough economic conditions, with CreditorWatch’s February Business Risk Index recording a 47 per cent increase in invoice payment defaults in the 12 months to February 2025.

Though the economy has recently shown some signs of recovery, US President Donald Trump’s decision to impose 25 per cent tariffs on steel and aluminium imports and threats to expand the impost risk a bumpier landing for Australia.

This could have consequences for business confidence, share prices and employment, which could result in more insolvencies, CreditorWatch chief executive Patrick Coghlan said.

“We certainly hope that the worst-case scenario of a global recession doesn’t eventuate, but businesses should nevertheless be taking steps now to manage that risk,” he said.

The federal government’s July tax cuts and the Reserve Bank of Australia’s February rate cut may have offered some help for businesses as they struggle to meet tax debts and cost pressures.

However, the increase in trade payment defaults is a bad omen as it is strongly correlated with businesses becoming insolvent or voluntarily closing in the following 12 months, with the risk of insolvency rising from 0.7 to 7.9 cent when a business defaults.

Businesses in western Sydney and Queensland’s southeast are at the greatest risk of failing as they are more exposed to construction and generally have lower income levels.

If tariffs are raised on other goods, the indirect impacts will likely deepen the credit cycle, but even if Mr Trump walks away from tariffs, the economic situation could still be difficult to manage, CreditorWatch warned.

Treasurer Jim Chalmers has condemned the trade measures as a form of “economic self-harm” and says trade restrictions will mean less growth and more inflation.

Defence Minister Richard Marles said the government continued to talk to the White House, noting exemptions granted in the previous Trump administration took nine months.

Though the steel and aluminium tariffs are projected to impact GDP by less than 0.03 per cent by 2030, indirect effects are more likely to be 0.1 per cent by the end of the decade.

The situation could worsen if the US president imposes tariffs on industries like beef and pharmaceuticals, which have greater trade links with the US.

The coalition has criticised the federal government for failing to secure an exemption as it works to sharpen its attack and economic pitch to voters ahead of the election in the coming months.

Shadow Treasurer Angus Taylor has been under pressure to reveal how the opposition would manage cost of living issues.

Asked about his economic policy, Mr Taylor said the coalition had opposed $100 billion in Labor spending announcements and “won’t spend money on … frolics that are not going to strengthen our economy”.

Quizzed on reports the coalition was looking to pump an additional $15 billion a year into defence to boost spending to 2.5 per cent of GDP, Mr Taylor pledged a better budget bottom line if he became treasurer.

“The key to being able to spend what is necessary on defence is to have a strong economy,” he told ABC radio on Wednesday.

He ruled out cuts to essential services.

 

Kat Wong and Dominic Giannini
(Australian Associated Press)