Australian businesses active in China upbeat despite tariffs: RBA deputy governor
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The news: Reserve Bank deputy governor Andrew Hauser thinks Australian companies are upbeat and finding opportunities amid the global volatility that could even enhance their competitive position.
In a speech delivered at the Lowy Institute on Thursday evening, Hauser said Australian companies doing business in China “see opportunities amidst the risks” from US President Donald Trump’s tariffs. He specifically cited his experience at a roundtable discussion organised by Austcham Shanghai and attended by a substantial group of Australian businesses active in China, where he was struck by how upbeat firms were about their outlook.
“What really struck me about that session was how upbeat most, if not all, of the firms were about the outlook for their businesses … there was also a sense that recent developments in trade policy could enhance their competitive position in Chinese market,” Hauser said.
“There’s always a risk of survivor and recency bias in such discussions, of course … but we heard something similar in separate discussions with companies active in steel and iron ore — the latter, of course, being Australia’s largest export to China by some distance. They saw few threats to the scale and cost advantages of Australian ore relative to other producers in the near term,” he said.
The numbers: Hauser said there were three aspects that those he spoke with in China had been surprised by from Trump’s tariff announcements. The scale was much larger than the 25 to 50 percentage point increase expected, they were more immediate than anticipated and wider in scope with tariffs across Southeast Asia as well.
“It is difficult to quantify the economic impact these mega-tariffs could have had on China. But expectations in China appeared to be in the range of 1.5 to 2 percentage pints of GDP in 2025, before accounting for any offsetting policy stimulus,” Hauser said.
“Those are big numbers. But for every expression of surprise, we also heard a striking confidence that China was going into this trade war with a strong hand”.
He said there is a deep belief in the government’s growth target of around 5% a year, confidence the authorities have the tools to inject necessary stimulus and a broad view that a large part of the economic cost would be borne by the US. And there were doubt about whether manufacturing currently undertaken in China would significantly relocate to the US.
“The inflationary impact of US tariffs on US consumers could, of course, be reduced if the Chinese currency were devalued substantially, as happened in 2018-2019," he said.
"But we detected little expectation that this would happen, because China would want to avoid: insulating the United States from its own tariffs; provoking retaliation from other countries; triggering capital outflow of the kind seen around the 2015 devaluation; or undermining the political and social gain (including recognition of China’s economic and technological advance) perceived to flow from a stronger exchange rate.”
He said the central expectation was for Chinese steel output to remain “relatively robust” at or near the 1 billion tonnes a year in the near-term.
Context: Hauser visited the RBA’s Chinese office, based in the Australian Embassy in Beijing, a week after the US’ Liberation Day and announcement of a suite of new tariffs, including 145% against China.
He provided a significant caveat at the end about his commentary, noting this speech was “deliberately narrow”, based on his experiences at a moment in time from one set of views and that the situation is fast changing. His visit was ahead of the pause in tariffs between the two nations amid negotiations.
RBA governor Michele Bullock is visiting the Chinese office next week.
What he said: “Recent weeks have walked us back from the precipice a little. The rapid reductions in US tariffs on China’s Asian neighbours saw a pick-up in production an export via third countries, as was evident from the April trade data,” Hauser said.
“And the threat of ‘mutual assured (economic) destruction’ provided the context for the rapid, if ostensibly temporary, reduction of the United States and China tariffs. Those tariffs still remain well above historical levels, of course — and future increases, or other trade barriers, cannot be ruled out.
"But in view of the near-term de-escalation, China’s seemingly strong negotiating position and its scope to inject further stimulus, our baseline projection for Chinese GDP growth … is 4.8% in 2025 and 4.4% in 2026 — only modestly changed on three months ago.”
The source: Reserve Bank speech
