A leading economist has suggested Donald Trump’s plan to impose 60 per cent tariffs on Chinese goods will cause inflation to fall in Australia..
Treasurer Jim Chalmers has warned that the US president-elect’s plan to impose punitive tariffs could worsen inflation if it sparked a global trade war.
“Trade makes up about half of the Australian economy, so we know we need to make this work for us and not against us,” he told the ABC on Monday.
“We will not be immune to the consequences of any trade war that occurs in our region or around the world.”
But Leith van Onselen, chief economist at MacroBusiness, said imposing 60 percent U.S. tariffs on Chinese imports would actually be deflationary, as the Communist Party powerhouse sold goods at discounted prices around the world.
“In the medium term, Trump’s election is likely to be deflationary for the Australian economy because if the United States imposes a 60 percent tariff on China, what that means is that China’s products will be dumped in other markets around the world. lower prices.’ he told Sydney radio 2GB host Ben Fordham on Tuesday.
‘China will probably end up dumping cheaper products into Australia because they are no longer sold to the United States.
“We will probably end up with cheaper electric vehicles.
A leading economist has suggested that Donald Trump’s plan to impose 60 per cent tariffs on Chinese goods will cause inflation to fall in Australia (the president-elect is pictured with his wife Melania and son Barron).
‘Those things are likely to be deflationary for the Australian economy because we will get lower imported inflation.
“Everyone needs to calm down a little.”
Australia’s core inflation rate of 3.5 per cent is still well above the Reserve Bank’s target of 2 to 3 per cent.
While services inflation is high at 4.6 percent, goods inflation in the year to September was already very low at 1.4 percent.
The fact that Australia has a free trade agreement with the United States meant it would be protected from the American president-elect’s plans to impose tariffs of 10 to 20 percent.
“If Trump goes ahead with his tariff plan, I think we will probably be excluded because we have a free trade agreement with them,” van Onselen said.
The previous Trump administration in 2018 granted Australia an exemption from 25 per cent tariffs on steel and 10 per cent import taxes on aluminum.
This also honors a free trade agreement between Australia and the United States that has allowed tariff-free trade between both nations since 2005.
The United States, the world’s largest economy, also has a trade surplus with Australia, meaning that Australia buys more goods and services than the United States buys from Australia.
Treasurer Jim Chalmers warned that the US president-elect’s plans to impose punitive tariffs could worsen inflation if it sparked a global trade war.
But Trump’s plans to impose 60 percent tariffs on China could hit its demand for iron ore, Australia’s biggest export and the commodity used to make steel.
“That will certainly negatively impact our demand for iron ore and coking coal,” Mr van Onselen said.
‘China is our biggest export market for raw materials, so obviously lower demand from China means prices for those products will likely fall.
“In volumes, we could sell a little less and that is obviously negative.”
However, van Onselen said a drop in demand for Chinese manufactured goods from the United States could cause the power of the Communist Party to stimulate its economy.
This, in turn, could boost demand for Australian iron ore, as China produces more goods for its domestic consumption.
“We don’t know how China is going to react; China could react to the drop in demand by increasing stimulus, as it usually does,” he said.
The 30-day interbank futures market now predicts Australians won’t get a rate cut until June next year.
But Leith van Onselen, chief economist at MacroBusiness, said imposing 60 percent U.S. tariffs on Chinese imports would actually be deflationary, as the Communist Party powerhouse sold goods at discounted prices around the world.
This is despite the big four banks (Commonwealth, Westpac, NAB and ANZ) predicting a rate cut in February.
But van Onselen admitted uncertainty over Trump’s policies could cause the Reserve Bank of Australia to delay any rate cuts.
“They don’t know exactly what their policies are going to be and that could delay interest rate cuts by about a month,” he said.
Treasury Secretary Steven Kennedy noted last week that Australian borrowers were missing out as the rest of the developed world cut interest rates this year.
“Central banks in the US, UK, New Zealand, Canada and the euro zone have joined Sweden and Switzerland in cutting interest rates this year,” he said.
“Despite these reductions, in a number of these countries, interest rates remain above the Australian level.”
While most of those countries have higher interest rates than Australia, the RBA’s cash rate of 4.35 per cent is 60 basis points higher than the Bank of Canada’s equivalent 3.75 per cent policy rate .