Trump tariff disruption could have ‘small, positive effect' on Australian economy, productivity commission finds

The Guardian

18 hours ago

Donald Trump's trade tariffs will have only a minor impact on our economy according to the Productivity Commission, as a leading economist said Australia was in the 'best position' in the world to withstand the surge in US protectionism.
The American president on Tuesday morning posted a series of letters which outlined individual countries' tariff rates that were close to previously announced levels, while extending the negotiation deadline from 9 July to 1 August.
As the world braces for potentially another three more of disruption and speculation about where tariffs will eventually land, Warwick McKibbin, an ANU economics professor, said the good news was that 'Australia's in probably the best position to handle' the fallout from the Trump's assault on global trade.
McKibbin, who is a recognised world leader on modelling the potential impact from America's new era of trade protectionism, told the Australian Conference of Economists on Monday that Australia should be looking at these disruptions as an 'opportunity' to expand trade with our partners.
'We should be doing trade negotiations. We should be lowering barriers which make trade harder,' he said.
McKibbin's conclusion that Australia would be left relatively unscathed by US-led trade disruptions was backed up by separate PC analysis which showed our economy could even receive a small boost from America's higher trade barriers.
The PC's modelling found that retaliating with our own tariffs would be counterproductive, and that the best response was to pursue reforms at home to boost the productive potential of Australia's economy.
With Anthony Albanese yet to meet the US president in person, Jim Chalmers in a statement said the PC's conclusions backed the government's approach to American protectionism.
Jim Chalmers said 'the key message from the PC review is that Australia is best served by continuing to advocate for free and fair trade, and that's exactly what we've done'.
James Paterson, the shadow finance minister, told Channel 9 that 'the only fair tariff on Australia would be 0%, and I hope that's what we get'.
'But we haven't given ourselves the best chance of securing that from the Trump administration because the prime minister has not even met President Trump, now seven months after he was elected,' Paterson said.
The PC modelling found the 'small, positive effect' on Australia's economy comes about as goods previously sold to the US are diverted to us at a cheaper rate, and as we also scoop up some of the investment that flows out of America and heavily tariffed countries.
But Alex Robson, the PC's deputy chair, warned the 0.4% modelled lift in GDP did not account for other, harder to model knock-on effects.
'The proposed tariffs are likely to have a relatively small direct effect on us, but the global uncertainty they've brought about could affect living standards in Australia and around the world,' Robson said.
Trump's letters he posted on social media threatened tariff rates of 25% on Japan, South Korea, and Malaysia, all within 1 percentage point of previously threatened tariffs.
Tapas Strickland, NAB's head of market economics, said there were some early clues about where import tax rates may eventually settle.
'If the agreement with Vietnam is anything to go by, then countries where the US has a trade deficit with look destined to have a 20% tariff, and those where the US has a trade surplus with a 10% tariff,' Strickland said.
'That could mean eventual tariff rates settle higher than what the current consensus is which is broadly for a 10% across the board tariff with a higher tariff on China.'