Will Trump's Sweeping Global Tariffs Derail Australia's Economy? Chalmers Offers Reassurance

Australia is well-prepared to manage the direct shocks of U.S. President Donald Trump's tariffs, but the global economic slowdown they trigger could impact the nation's growth, Treasurer Jim Chalmers said Monday.

Chalmers' comments come as markets around the world have been shaken, with volatility in currency, stock, and bond markets disrupting the federal election campaign. Despite this, he reassured Australians that the country's economy was in a strong position to weather the storm, ABC News reported.

"But we still do expect Australian GDP to take a hit and we expect there to be an impact on prices here as well," Chalmers said. "I don't predict or pre-empt those decisions, but the market is certainly now expecting multiple interest rate cuts over the course of the year, beginning in May."

Australia expects consumer spending to rise due to slowing inflation and government tax cuts, reported Reuters.

The Treasury's latest analysis of Trump's tariff policy showed that the trade war's effects could slow global growth. According to the Treasury's modeling, the U.S. tariffs and China's retaliatory measures would lead to a 0.1% drop in Australia's real GDP for the year. Additionally, inflation would rise by 0.2 percentage points.

The treasurer also warned that the economic fallout from the tariff conflict would hit U.S. and Chinese economies hard, with the latter's GDP expected to be 0.6% lower than previous forecasts.

Last week, the Trump administration announced sweeping tariffs on nearly every country, ranging from 10% to 50%, which prompted retaliatory actions worldwide, with China imposing a 34% tariff on U.S. goods.

RBA may cut rates amid global uncertainty

In response to growing concerns about global trade, Chalmers highlighted expectations for the Reserve Bank of Australia (RBA) to consider interest rate cuts. With markets anticipating a 50-basis-point rate reduction next month, Chalmers emphasized that the Reserve Bank was carefully monitoring the situation.

Chalmers said he had a discussion with RBA Governor Michele Bullock on the risks posed by global economic uncertainty.

While the RBA had kept interest rates steady last week, discussions were dominated by the challenges posed by international trade tensions.

Market turmoil and budget questions

Following two consecutive days of market declines, Australia's stock exchange remained volatile as investors tried to assess the extent of the damage caused by the U.S. tariff actions. The tariff shock, which follows closely on the heels of the federal budget, has raised questions about Australia's economic resilience and whether there is enough room in the national budget for potential stimulus measures.

Unlike past economic crises in 2008 or during the 2020 pandemic, when Australia's federal budget was in surplus or heading toward surplus, current forecasts predict growing budget deficits.

The Treasury's updated outlook in the Pre-election Economic and Fiscal Outlook (PEFO) pointed out that Trump's tariffs were bigger than initially anticipated in the March 25 budget.

Revised economic forecasts

Treasury's PEFO also forecasted that the ongoing declines in global commodity prices, such as oil and iron ore, would require downward revisions to the government's tax revenue projections.

The document predicts the underlying budget deficit will reach AU$42.2 billion in 2025/26, growing to AU$65.2 billion when "off-budget" spending is included. Deficits are projected to continue until at least 2035-36, with gross debt reaching 37% of GDP by 2030.

Albanese calls for stable government

In Melbourne, Prime Minister Anthony Albanese addressed the need for a stable government amid the uncertainty created by Trump's tariff policies. Albanese stressed that the unpredictability of global trade highlights the importance of sound, consistent leadership at home.

Opposition Leader Peter Dutton, however, criticized financial market volatility, and warned that a global recession, including in the U.S., would be disastrous under a Labor-Greens government.