Businesses have already struggled 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 this regime 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 decision 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 failure as they are more exposed to construction and generally have lower income levels.
"The outlook, unfortunately, is now hostage to the somewhat unpredictable policies of the Trump administration," the report found.
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.
"Businesses should prepare for the former and hope for the latter," the report said.
Treasurer Jim Chalmers has condemned the trade measures as a form of "economic self-harm" and said trade restrictions would mean less growth and more inflation.
"They are self-defeating and self-sabotaging," he told the Queensland Media Club on Tuesday.
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.Â
The situation could worsen if the US president imposes tariffs on industries like beef and pharmaceuticals, which have greater trade links with the US.
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