Jackson Hewett: Is the RBA going to cut rates? Trump's tariffs raise economic risks
As the RBA Board enters the second day of deliberation, they'll be sweating on US President Donald Trump's fresh round of tariffs including 25 per cent on key Australian trading partners Japan and Korea.
A messy, drawn-out trade war was a key concern at the last RBA meeting in May, something Assistant Governor Sarah Hunter said could 'structurally alter the world economy'.
At its last meeting, the RBA ran through a bunch of scenarios: one where things stay mild, one where the worst is avoided, and one where a full-blown trade war sends everything south.
That worst-case scenario includes higher prices for imports, broken supply chains, nervous businesses pulling back on investment, and a hit to confidence across the board.
With components of complex goods like cars sourced across multiple countries, the danger is tariff-induced bottlenecks, pushing up prices at the same time as global demand is going soft. That's the kind of squeeze central banks hate: weak growth and rising costs.
And then there's the uncertainty. It's not just what tariffs are in place, it's the fact that no one knows what's coming next. 'There is ample research showing that higher uncertainty can lead to declines in investment, output and employment,' Ms Hunter said in June.
When things are this unpredictable, businesses sit on their hands. Some of the market reaction to Trump's tariff spree has eased since April's collapse, but the RBA knows it won't take much for investors to get spooked again, and that could feed straight into tighter financial conditions here.
The RBA has enough evidence to suggest Australia needs an interest rate shot in the arm. The Commander Chaos in Chief has thrown a new layer of concern into the mix.
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Perth Now
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South Korea said it planned to intensify trade talks over the coming weeks "to reach a mutually beneficial result". Asked if the latest deadline was firm, Trump replied on Monday: "I would say firm but not 100 per cent firm. "If they call up and they say we'd like to do something a different way, we're going to be open to that." Market reaction was muted as investors assessed the latest twist in the long-running trade saga. The European Union, which is the largest bilateral trade partner of the US, aimed to strike a deal before August 1 with negotiations focused on "rebalancing" and concessions for certain key export industries, a European source familiar with the negotiations said. Some EU sources had said late on Monday that the bloc was close to an agreement with the Trump administration. This could involve limited concessions to US baseline tariffs of 10 per cent for aircraft and parts, some medical equipment and spirits. Only two deals have been struck so far, with Britain and Vietnam. Washington and Beijing agreed to a trade framework in June, but with many details still unclear, traders and investors are watching to see if it unravels or leads to a lasting detente. Trump's trade tactics were making it hard for nations and businesses to plan with any certainty, the executive director of the United Nations trade agency said on Tuesday. "This move actually extends the period of uncertainty, undermining long-term investment and business contracts, and creating further uncertainty and instability," Pamela Coke-Hamilton, executive director of the International Trade Centre, told reporters in Geneva. 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Powerhouse Asian economies Japan and South Korea will try to negotiate with the US to soften the impact of sharply higher tariffs that President Donald Trump now plans to impose from the start of August. Trump ramped up his trade war again on Monday, telling 14 nations that they would face tariffs ranging from 25 per cent for countries including Japan and South Korea, to 40 per cent for Laos and Myanmar. However, with the start date pushed back to August 1, those countries are focusing on the new three-week window to press for an easier ride. Japan wanted concessions for its large automobile industry, top trade negotiator Ryosei Akazawa said on Tuesday. Akazawa said he held a 40-minute phone call with US Commerce Secretary Howard Lutnick in which the two agreed to actively continue negotiations. However, he said he would not sacrifice Japan's agriculture sector - a powerful political lobby domestically - for the sake of an early deal. South Korea said it planned to intensify trade talks over the coming weeks "to reach a mutually beneficial result". Asked if the latest deadline was firm, Trump replied on Monday: "I would say firm but not 100 per cent firm. "If they call up and they say we'd like to do something a different way, we're going to be open to that." Market reaction was muted as investors assessed the latest twist in the long-running trade saga. The European Union, which is the largest bilateral trade partner of the US, aimed to strike a deal before August 1 with negotiations focused on "rebalancing" and concessions for certain key export industries, a European source familiar with the negotiations said. Some EU sources had said late on Monday that the bloc was close to an agreement with the Trump administration. This could involve limited concessions to US baseline tariffs of 10 per cent for aircraft and parts, some medical equipment and spirits. 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