Just as it appears the world is imploding from the shockwave of President Donald Trump's tariff-led plan to make the United States economically great again, economists have provided some reassuring words for Australia.
The trade imposts are expected to have little direct effect on Australia and will lower inflation and increase the likelihood of interest rate cuts in this country, they say.
Goldman Sachs said although the headline 10% import duty increase for Australia and New Zealand was toward the upper end of its expectations, the direct impact was likely to be negligible.
The investment bank said the indirect effects were likely to be larger due to low growth among major trading partners, who were hit with larger tariffs than expected.
It forecasts 2025 gross domestic product (GDP) growth of 1.7% for Australia and 0.9% for New Zealand. Estimates have been lower by 10 basis points (bp) since the tariffs were announced and which in turn were cut by 20bp and 15bp respectively previously.
Goldman Sachs did not expect any direct impact on inflation in Australia and New Zealand given both governments indicated they would not apply retaliatory tariffs on U.S. imports.
“That said, in terms of indirect effects, we expect the changes to be marginally deflationary for both countries as manufacturers re-direct exports to non-US markets such as Australia and New Zealand to avoid U.S. tariffs,” it said in an economics research note.
Goldman Sachs cut its year-end headline inflation forecast by 10bp to 2.9% for Australia and 2.0% for New Zealand.
The bank said downward revisions to growth and inflation would “catalyse a materially dovish pivot” in coming weeks at the Reserve Bank of Australia (RBA), which it expects to cut official interest rates in May, July and August from the current 4.1% level.
RBC Capital Markets said the impact of U.S. tariffs on Australia was modest as it seemed to have escaped additional tariffs on top of the baseline 10% for all countries, but they disproportionately affected agriculture.
“We are also focused on what this means for the RBA moves. We are currently calling for another two 25 bp rate cuts in May and August and … (the trade) developments suggest downside risk to our current base case delivering more rate cuts and we have seen the street already move on this today,” RBC said.
CommSec said the direct impact of the 10% tariff on Australian goods would be minimal. Although the second-round effects of a global slowdown, especially in China could be more significant, Australia was better placed than most to navigate this period.
