The Reserve Bank of Australia (RBA) has raised concerns over the economic fallout of rising U.S. tariffs, warning that escalating trade tensions could dampen global growth, investment, and employment. Speaking in Brisbane, RBA Assistant Governor Sarah Hunter said the central bank is closely watching the evolving landscape of global trade policy, acknowledging the unpredictable nature of the current moment.
“The unpredictability and unprecedented nature of the current situation makes it hard to be precise on the size of the impact,” Hunter said on Tuesday, adding that greater uncertainty is already weighing on business confidence worldwide. The RBA expects these headwinds to lead to softer global output and employment, though the exact toll is difficult to estimate.
These growing risks were among the reasons the RBA cut interest rates to a two-year low of 3.85% last month, and signalled further easing may be on the table. Hunter noted that the central bank is assessing two possible paths: a severe downside scenario marked by prolonged trade fragmentation, and a more optimistic case where tariffs are rolled back under renewed trade peace.
“For countries that are not imposing higher tariffs, such as Australia, this could flow into import prices, making products cheaper and lowering inflation,” said Hunter, highlighting the potential for Chinese exporters to divert goods away from the U.S. to other open markets like Australia.
Indeed, the RBA now expects disinflationary forces to intensify as Chinese goods flood alternative markets, pulling down prices for imported products. Inflation data seems to reflect this trend—headline consumer prices held steady at 2.4% in Q1 2025, while core inflation eased to 2.9%, bringing it within the RBA’s target range for the first time since late 2021.
As the Board prepares for upcoming policy meetings, Hunter said the central bank will benchmark global developments against projections laid out in the May Statement on Monetary Policy. “This will help us identify the scenario that best reflects current conditions and the outlook,” she said, hinting that further policy adjustments may follow depending on how the trade landscape evolves.