Trump lead trade war could slash travel prices, raise dollar

The US-China trade war could slash the cost of overseas holidays for Australians, according a Reserve Bank of Australia analysis.

A higher Australian dollar, which recently traded at the lowest level against the US dollar in 2½ years, would lower the cost of overseas travel and ­imports. Picture: AP

US President Donald Trump’s ­latest round of tariffs on Chinese imports could slash the cost of overseas holidays for Australians, according to a previously unseen Reserve Bank of Australia analysis, which ­estimates the impact of an escalation in the emerging trade war ­between the world’s two largest economies.

The internal RBA analysis, ­released yesterday under Freedom of Information laws, found that a global trade war where every country put a 20 per cent tariff on foreign ­imports, ­including Australia, would ­increase the unemployment rate by 0.25 percentage points and ­reduce the level of GDP by 1 per cent by 2021.

“It is difficult to predict the ­effect of any increase in the global trade protectionism on the Australian dollar,” the analysis said, positing, however, that the local unit could jump 6 per cent in value in some circumstances.

“Australia may be less exposed to the [trade war] than other economies that rely more on global trade flows as a source of demand for their products, and have larger manufacturing sectors,” the internal analysis concluded.

The Trump administration ­announced a 10 per cent tariff on $US200 billion ($275bn), or about half, of its ­imports from China this week, which followed a 25 per cent tariff on steel and 10 per cent tariff on aluminium imports, imposed earlier this year.

Mr Trump threatened to impose a further 25 per cent tariff on $US267bn of imports by the end of the year.

Minutes from the Reserve Bank’s September meeting, written prior to Mr Trump’s latest ­announcement, described the emerging spat as a “material risk to the outlook”.

China announced retaliatory tariffs on $US60bn a year of US imports this week.

“A US-China trade war is likely to adversely ­affect the US, Chinese and Australian economies,” the analysis said.

A higher Australian dollar, which recently traded at the lowest level against the US dollar in 2½ years, would lower the cost of overseas travel and ­imports.