(Bloomberg) -- Fallout on Australian inflation from President-elect Donald Trump’s proposed tariffs is “ambiguous” given the wide range of variables, but the Reserve Bank will be alert and ready to respond as needed, Deputy Governor Andrew Hauser said Wednesday.
Speaking at an economists’ dinner in Sydney, he said higher tariffs worldwide would likely have indirect effects on Australian demand by depressing activity across supply chains. However, factors ranging from currency adjustments to fiscal responses in affected countries mean it’s impossible to know for sure.
“Given this uncertainty, it is important that we don’t prejudge the implications of tariffs for policy but monitor developments closely and stand ready to respond appropriately as the facts emerge,” Hauser said. “That is what we at the RBA will do, factoring that assessment into our overall policy judgments.”
The RBA’s No. 2 official pointed to some of Australia’s advantages:
- Its direct exposure to US tariffs is likely to be small;
- It has strong comparative advantages in raw materials and services other countries need to power traditional industries and industries of the future;
- It has a track record of nimbly reshaping trade relationships through a combination of market forces, proactive policy and negotiation; and
- a flexible exchange rate and independent monetary policy that can serve as powerful shock absorbers
Yet the deputy governor also highlighted that its trade exposure is “unusually concentrated” with more than 80% of Australia’s iron ore exports directed to China, which in turn accounts for three-quarters of global iron-ore imports.
“This seems to suggest that Australia could find itself more seriously affected by a global trade war than some of the average exposure data suggest, if China is subject to disproportionately punitive tariffs and/or the trend towards countries trading less with those they are most geopolitically distant from accelerates,” Hauser said.
But, “we should be careful not to jump to conclusions,” he added.
Hauser said it’s not clear whether Australian producers will need to find alternative markets and if they do have to, they may still be successful. Moreover, he said, in the longer term higher tariffs would likely encourage firms to diversify or employ more efficient, lower cost technologies, shifting investment and output toward lower tariff industries.
The impact of Trump’s policy agenda has been widely scrutinized by economists and policymakers. Hauser noted that one of the most comprehensive external assessments so far estimates that global tariffs would subtract only 0–0.2 percentage points from Australian GDP over the subsequent two years, depending on the scale implemented and the degree of retaliation.
The deputy governor’s remarks come days after China’s President Xi Jinping opened a probe into Nvidia Corp. and banned the export of several rare materials with military applications in response to restrictions imposed by the Biden administration on China’s access to vital components for AI chips.
©2024 Bloomberg L.P.