Australia’s economy will not escape unscathed from Donald Trump’s trade war, economists have warned, after the US hiked duties on Chinese imports to 104% and enacted world-wide tariffs that have reversed a century of American trade liberalisation.
As regional sharemarkets tumbled further on Wednesday and the Australian dollar slid below US60 cents, and to its lowest in more than two decades outside the pandemic, experts warned trade between China and the United States would grind to a halt as Trump followed through on his threat to slap even higher “reciprocal” import duties on about 60 trading partners.
The CBA’s chief economist, Luke Yeaman, said it was a historic moment and that it was difficult to predict how the trade shock would flow through to the global economy.
“The era of trade liberalisation, free market reforms, deregulation and fiscal discipline – the Washington Consensus – is officially dead and buried,” Yeaman said.
Treasury officials and leading economists, such as the ANU’s Warwick McKibbin, have predicted Australia should be relatively shielded from a global trade war.
Financial markets already believe it could lead the Reserve Bank to deliver a rare double rate cut when it next meets on 19-20 May, and that the larger duties on Chinese imports and the escalating rhetoric have ratcheted up the risk of an even greater blow to Australia’s growth.
A survey of consumer sentiment this week showed a sharp drop in confidence among Australians – a precursor to lower spending should households already hit by the high cost of living feel they have to become more frugal.
The ANZ’s chief economist, Richard Yetsenga, said it was not a time to be complacent about the risks to Australia’s outlook.
“The trajectory is quite worrying. I don’t think anyone should be sanguine,” Yetsenga said.
“China is one third of global production, and the US is a quarter of global demand, and 100% tariffs make it hard for much trade to happen between those two countries. How can Australia not be materially affected?”
Yetsenga believes that the damage to the American economy and financial markets will eventually force Trump to “pivot” away from his protectionist policies.
For now, however, the US president is doubling down. In response, Chinese officials have promised to “fight to the end”, and Europe is reportedly preparing its own retaliatory measures.
China, Japan, South Korea, India and Taiwan are among Australia’s biggest export markets and as of Wednesday were hit with import duties of 104%, 25%, 27% and 32%, respectively.
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That was on top of the 10% “baseline” tariffs on all countries, including Australia, announced on 2 April.
Yeaman, a former Treasury deputy secretary, said he believed Australia, with its relatively limited direct trade links with the US, was “as well placed as anybody” to ride out Trump’s trade war.
“Our economic fundamentals are strong,” he said, pointing to the solid support to growth and employment from high government spending, and the buffer offered by a weakening exchange rate.
“We are well placed, but not immune.”
The treasurer, Jim Chalmers, echoed that view ahead of meeting with the Council of Financial Regulators on Wednesday afternoon, which includes the Treasury secretary and the Reserve Bank governor.
“There’s a lot of uncertainty in the global economy, but Australia is well placed and well prepared to deal with it,” Chalmers said.
“We are working closely with the regulators, and we are confident that we can weather these global conditions, but we’re not complacent about that.”
