The global trade war has escalated with US President Donald Trump threatening China with an added 50% tariff, which would take the total levy to 104%.
On his social media account Blue Sky, President Trump announced retaliatory action if Beijing doesn’t drop its 34% tariff on US goods.
“Don’t be Weak! Don’t be Stupid!”, President Trump urged Americans minutes before Wall Street opened on Monday.
However, markets across the US and Europe and oil prices fell further after Trump threatened more tariff increases.
Trillions of dollars have been wiped off combined market valuations in recent sessions.
Treasurer Jim Chalmers sought to soothe Australians, saying the country was “better placed and better prepared” to dodge a global trade war recession.
“We expect more manageable impacts on the Australian economy, but we still do expect Australian GDP to take a hit”. he said.
“I can assure people that in a world of volatility and uncertainty, Australia is better placed and better prepared than our peers”.
Chalmers also pointed to financial market projections that the Reserve Bank of Australia (RBA) could cut interest rates up to four times this year, including a 50 basis point reduction next month.
“I don’t predict or pre-empt those decisions, but the market is certainly now expecting multiple interest rate cuts over the course of the year, beginning in May”, he said.
“The next Reserve Bank interest rate cut in May might be as big as 50 basis points”.
He said it was also a reflection of “people’s concerns about the Chinese economy”.
Nevertheless, Chalmers warned there were a “much more substantial risks” of a recession following the US tariffs announcement.
“We take seriously the warnings from economists around the world about the risk of a global recession”, he said.
The direct impacts of the US tariffs on Australia are likely to be small. Only around 4% of Australia’s exports are to the US, so a 10% tariff won’t hurt too much.
However, it is the indirect impacts that are most concerning for the Australian economy.
Australia’s top three export markets—China, Japan, and Korea—are facing new tariffs ranging from 24% to 34%.
Source: DFAT
President Trump has also threatened to increase tariffs on China—Australia’s single largest export market—by another 50%.
The US tariffs will inevitably slow growth in these nations, which will result in them purchasing fewer goods from Australia—e.g., iron ore, coal, and energy.
This is where the rubber really hits the road for Australia. If the Chinese economy sneezes, Australia’s economy will catch a cold.
