RBA's Andrew Hauser warns investment could falter on back of Trump tariffs
Make us a preferred source
Make us a preferred source on Google
The news: Reserve Bank deputy governor Andrew Hauser has warned the ambiguity from US President Donald Trump's tariffs could see companies and households "batten down the hatches" and postpone planning and investment, leading to a hit to the economy.
The numbers: Trump's additional 10% tariffs on imports from China and 25% tariffs on products from China and Mexico came into effect on Tuesday. He's also planning 25% tariffs on all aluminium and steel imports and has threatened tariffs on the European Union, among others.
The context: In a speech delivered on Wednesday morning in Sydney, Hauser said that up until recently there had been an “apparently benign reaction” from markets to tariff announcements. He said investors may have believed tariff threats were being used for negotiation, with “relatively limited longer term effects” or that other polices outweigh the impact on global activity.
“That confidence has taken a bit of a knock in recent days,” he said, suggesting it could reflect companies and households moving from a “carry on till the fog lifts” approach to thinking “almost anything could happen” and putting a hold on their plans.
“Such ‘watchful waiting’ could prove rational individually, but economically damaging in aggregate,” Hauser said.
He cited US Federal Reserve estimates that trade policy uncertainty reduced global GDP by almost 1% in 2019 and the “pick-up in policy uncertainty is much larger this time around”.
He said this uncertainty about the geopolitical environment “played a part” in the RBA’s most recent rates discussions, alongside uncertainties in the domestic economy and the labour market.
The RBA cut rates by 25 basis points at its February meeting and published a swathe of new forecasts and analysis of the economy in its statement on monetary policy. This outlined several different tariff scenarios modelled by the RBA's economics team and the impact on the Australian and global economies.
The uncertainties in the forecasts, and myriad views on the path forward for inflation, led to some criticism that the RBA should not have cut rates.
Hauser ended his speech by disputing claims that the RBA board rejected the central bank staff’s forecasts by cutting rates at the February meeting. He also hit back at claims the bank “suddenly and confusingly relax our previously stated intolerance for persistent inflation deviations from target”.
He said it was “nothing of the sort” and the board was encouraged by recent price and wage inflation data. And while it didn’t think up to four 25 basis point cuts implied by the market were consistent with reaching 2.5% inflation, this did not mean there wasn’t a case to cut at all.
What they said: "The rules of global trade have been turned on their head. New geopolitical realities are dawning. Artificial intelligence, the energy transition, demographic change and the long shadow of COVID-19 are fundamentally changing our concepts of economic activity and work. And Australia, like elsewhere, is seeking new sources of productivity growth," Hauser said.
"With the world in flux, companies, households and governments must change how they think, act and plan – just like those army cadets of the 1980s," he said.
The source: Andrew Hauser speech AFR Business Summit
