Reserve Bank worried Australia would get Trumped in a trade war

A full-blooded Trump administration trade war would slow Australian growth and send shares south, the Reserve Bank reckons.

Donald Trump is gearing up for a second term leading the United States and has promised to levy huge tariffs on Chinese products — another major step away from the Republican Party’s long-time support for free markets and low taxes.

RBA Governor Michele Bullock has been cautious in her public comments on the proposals, declaring earlier this month “we don’t actually know what will happen”.

But documents released by the central bank on Monday revealed internal discussions in the lead-up to US polling day about the impact of Mr Trump’s — and Democratic nominee Kamala Harris’s — proposals.

China is Australia’s top export destination and a tariff-induced slowdown in the Asian superpower would have “strong negative implications for Australia”, the briefing note by the RBA’s international department said.

“In the extreme scenario, weaker export demand, and slower growth would be disinflationary, putting downward pressure on policy rate expectations, government bond yields and the Australian dollar,”.

“Equity prices would likely decline as earnings expectations are revised down.”

That means inflation in Australia would fall and pull down interest rates, while shares would also drop.

In a more moderate scenario, Trump’s tax cut and deregulation agenda would boost US growth, leading to a more balanced outcome DownUnder — with interest rates down and shares up.

Commonwealth Bank last week warned weaker growth China would send commodity prices downward, cutting Australia’s export earnings and tax revenue.

The impact would be countered if China unleashed the stimulus pumps in response.

It comes after the latest national data showed Western Australia’s economic growth was the weakest of all States at just 0.5 per cent — with falling exports to blame.

But Judo Bank has labelled WA “the superstar of the domestic economy”, saying the State had consistently outperformed over three years.

Economic activity was 35 per cent higher than in June 2021 — excluding trade and without removing the impact of rocketing prices thanks to inflation — Judo said.