Australia well placed to avoid impact of Trump tariffs: RBA’s Andrew Hauser

Australia has an advantage in weathering the expected upending of US trade policy under Donald Trump, Reserve Bank deputy governor Andrew Hauser has said.

US president-elect Donald Trump has vowed to implement sweeping tariffs on foreign imports. Picture: AFP

Australia is well prepared to weather an expected upending of US trade policy under president-elect Donald Trump and the risk his proposed tariffs could cause a global economic downturn are low, Reserve Bank deputy governor Andrew Hauser has said.

In the most expansive remarks by the central bank regarding the impacts of Mr Trump’s policies on Australia, Mr Hauser on Wednesday played down their domestic economic implications.

“Our direct exposure to US tariffs is likely to be small,” Mr Hauser told the Australian Business Economists’ annual dinner, pointing to the modest value of Australia’s exports to the US.

“We have strong comparative advantages in raw materials and services that other countries need, both to power traditional industries and the industries of the future. We have a track record of nimbly reshaping our trading relationships,” he said, arguing that Australia’s floating exchange rate and independent central bank would serve as “powerful shock-absorbers” in the event increased trade tensions did arise.

Despite those assurances, Mr Hauser warned no outcome could “be definitively ruled out” as Australia was “intimately linked to the world economic and financial system at every level”.

“History shows that when trade, labour and money flow freely in the global economy, we thrive – but when countries turn inwards, we suffer,” he said, warning inflation could ease further or accelerate as a result of Mr Trump’s policies.

While tariffs typically push up inflation because of higher import prices, some economists believe Australia could ultimately benefit from US tariffs if they resulted in a diversion of cheap foreign goods.

Mr Hauser’s address follows commentary from RBA governor Michele Bullock, who has stressed it was too early to determine the impact of Mr Trump’s policies, in part due to continued uncertainty over how China would react to tariff increases.

Scenario planning conducted by the RBA’s economists found an “extreme” trade war between the US and China would shave value off the Australian dollar, trim gains on the local sharemarket and potentially force the RBA to aggressively cut interest rates amid flagging growth.

Late last month, Mr Trump fired the opening salvo in an expected trade war with China, pledging to slap its imports with an initial 10 per cent tariff on top of existing duties, while announcing plans to implement a 25 per cent levy on Mexican and Canadian products.

Mr Trump has also vowed to introduce a “universal baseline tariff” of 10 per cent on all ­“foreign-made goods”, making no assurances Australia would be immune from the excise.

Combined with tax cuts, mass deportations and increased military spending, Mr Trump’s economic plans are projected to widen budget deficits by $7.5 trillion over a decade, according to the non-partisan committee for a responsible federal budget.