The Australian government has been commendably reserved in its reaction to the 10 per cent tariff imposition on this country. Treasurer Jim Chalmers believes the impact of the tariffs on our economy should be manageable. Tit-for-tat is not in the lexicon, unlike the concerning war talk between America and China. In retaliation to China’s rise in tariffs, which was in retaliation to America’s rise in tariffs, Trump is hinting at an additional impost if China does not drop its action. As The Age’s Steven Bartholomeusz noted on Tuesday, this would take the levy to more than 100 per cent. This is not brinkmanship; it is dangerously provocative.
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In Australia, and especially during an election campaign, all roads lead to the cost-of-living crisis and interest rates. There are calls from some quarters for the Reserve Bank to convene an emergency meeting instead of waiting until its next scheduled session on May 30. It should keep its appointed meeting.
The economic waters are moving too swiftly and turbulently for knee-jerk reactions, which could themselves cause unnecessary concern. RBA governor Michele Bullock would do well to be ready should conditions worsen and a jolt is required. She will be all too well aware of getting the timing wrong on interest rates. In February she told a House of Representatives committee that the Reserve had been too slow to raise rates.
“We didn’t respond as quickly as we should have to rising inflation,” she said.
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She also recently said she wanted to be better informed on employment and inflation rates before making another cut.
The challenge now is not to respond with haste but with considered action. There is a growing chorus of expectation that the RBA will, or should, cut rates at least four times this year.
Chalmers is being disingenuous in trying to distance himself from the benefits of this when he introduces his comment thus: “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, and other politicians, would also be wise to prepare for swift action. The need for ingenuity will be great as the budget is not as well placed as it was during the global financial crisis and the pandemic to cushion the fall for Australian households.
Certainly the news looks set to get worse in the short run. In America, the spectre of a bear market is looming and, potentially more worrying, stagflation, a combination of higher unemployment and inflation as well as softer growth.
In responding to Trump’s blowtorch attacks on the world economy, cooler heads must prevail. In short, don’t panic.
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