The chances of being propelled into another global depression by United States tariffs are low, according to Reserve Bank of Australia (RBA) Deputy Governor Andrew Hauser.
Hauser said some commentators had a nightmarish view of the world economy in 2025 if the United States under new President Donald Trump triggered a tit-for-tat trade war with China and other countries.
In a speech prepared for delivery to the Australian Business Economists’ Annual Dinner on Thursday he said in that hypothetical scenario, economic activity would fall and prices would rise across the world as global supply chains were disrupted, leading to weakened competition, productivity and innovation.
“Nothing can be definitively ruled out: Australia is intimately linked to the world economic and financial system at every level. And history shows that when trade, labour and money flow freely in the global economy, we thrive – but when countries turn inwards, we suffer, Hauser said in the speech.
“But… the macroeconomic implications for Australia from future global trade policies may be less obvious than they first appear.”
He said little was known about the scale, scope and timing of the policies, the scale of any depressing effect on Australian economic activity was uncertain, and the implications for Australian inflation and monetary policy could be positive or negative, depending on how tariffs affected the balance between supply and demand.
He noted Australia was not major exporter to the United States and it had strong comparative advantages in raw materials and services that other countries needed to power traditional industries and the industries of the future.
Australia also had a track record of nimbly reshaping trading relationships through market forces and proactive policy and its flexible inflation target and exchange rate could help to absorb the impact of global shocks.
“The chances of being propelled into another global Depression are low,” he said.
“So it would be unwise to prejudge what may happen in practice. As with every element of monetary policy setting, we will be alert to developments and ready to respond – in either direction, with force if needed, to deliver our mandate of low and stable inflation with sustained full employment.”