In a speech at the Australian Financial Review Business Summit, deputy governor Andrew Hauser said Australia is unlikely to be directly affected by Donald Trump’s proposed tariffs, but the RBA will closely monitor potential global fallout from the escalating trade war.
The comments came as Trump’s 25 per cent trade tariffs on Canada and Mexico took effect, alongside an additional 10 per cent tariff on China, bringing the total increase on Chinese imports to 20 per cent during his current term.
“Australia’s direct exposure to US tariffs levied on our exports is limited,” Hauser said on Wednesday.
“Such an analysis might quickly turn, however, to the fact that Australia is heavily integrated into, and reliant on, the global economy more broadly – and particularly China,” he said.
A key macroeconomic risk for Australia, Hauser explained, is the potential for US tariffs on third countries to spark a global trade war, disrupting trade and financial linkages.
“As Australia’s long history has shown, we thrive when trade, labour and assets flow freely in the global economy, but we suffer when countries turn inwards,” the deputy governor added.
Hauser noted that financial markets, until recently, showed little concern for adverse scenarios, but added that “confidence has taken a bit of a knock in recent days”.
"Some of that reflects recent US data, and some evolution in the direction of tariff policy,” he said.
It may also reflect a growing recognition that businesses and households could delay long-term investments as a result of growing tariff “ambiguity”, Hauser acknowledged, citing Federal Reserve estimates that show a similar scenario in 2018 shaved nearly 1 per cent off global GDP in 2019. He acknowledged that the possibility of such an effect played a part in the board’s policy deliberations in February.
Looking forward, the deputy governor stressed the importance of not prejudging the implications of tariffs, stating that the RBA will closely monitor developments and respond appropriately as the facts emerge.
“We will have to keep a very close eye on what this means for inflation, and if inflation picks up, we’d have to respond one way, if it falls, we’ll respond in another,” Hauser said.
Speaking to InvestorDaily on Tuesday, AMP’s Shane Oliver said that while a deal on tariffs with Mexico and Canada is expected, ongoing announcements of additional tariffs, including a likely 25 per cent tariff on Europe, will continue for months.
“There’s quite a lot further to go,” the chief economist said.
He explained that the effective US tariff rate has increased to 11 per cent of all goods imported into the country – its highest level in decades.
“That, I suspect, could knock 0.5 per cent off US economic growth this year potentially,” Oliver said, adding that the likely boost to inflation sits at around 0.7 per cent.
He added that while the trade situation is unlikely to drive inflation in Australia, its impact will be felt through slower growth, with reduced trade and demand for exports.
"You could make an argument if the tariffs are confirmed, and there is still more to come, that actually adds to the case for RBA rate cuts because of the weaker growth," Oliver said.
