DAE Business Outlook: A new order of the ages
For Australia, the direct economic effect of recent trade policy announcements is likely to be relatively modest. More important will be the indirect effects stemming from the implications for growth in China.
The actions of the new administration in the United States (US) – including a dramatic increase in tariffs on almost all countries and a redefining of the role of the US as a strategic partner in Europe – have brought into sharp focus the changing nature of the global economy and geopolitics.
They have worked to accelerate the pace of existing, long-term, structural shifts in the economic and strategic relationship between the US and China. And they have caused critical and hurried introspection about the nature of international trade, global financial markets, and Australia’s unique vulnerability in the world, given that no other country is as simultaneously reliant on both US security and Chinese economic growth.
At the time of writing, the US administration had announced several major changes to tariffs on goods entering the US, rapidly altering US trade policy and unwinding an extended period of trade liberalisation that has broadly been in place since the Second World War.
Deloitte Access Economics expects the US economy to grow by 1.3% in 2025, a downward revision from the 2.6% growth forecast for 2025 in the previous edition of Business Outlook.
What are the implications of changes in US trade policy for the Australian economy?
The forecasts included in this edition of Business Outlook are based on US trade policies announced as at 16 April 2025 and assume that (a) tariff levels do not revert to the 2 April 2025 (“pre-pause”) rates at the end of the 90-day pause for any significant US trade partners, (b) there are no retaliatory tariffs implemented by any significant US trade partners other than China and Canada, and (c) that China implements fiscal stimulus to support domestic economic growth in order to offset the effect of very high US tariffs.
On that basis, Deloitte Access Economics’ assessment is that the short-term economic effects of US tariff policies on the Australian economy will be relatively modest.
That might appear counter-intuitive, particularly given the seismic nature of the policy changes and financial market volatility in reaction to the initial tariff announcement in early April. Indeed, it should not be confused with a view that the changes in US tariff policy are not significant. On the contrary, they represent one of the most significant economic policy shifts of the past 80 years.
However, only around 4% of Australia’s goods exports by value flow to the US, meaning the direct impact of the 10% tariff applied to Australia is likely to be immaterial in the context of overall economic growth.
Chart 1: Forecast economic growth in Australia and major economies
More important for Australia will be the response from China. While no substantive stimulus had been announced at the time this edition of Business Outlook was finalised, Deloitte Access Economics’ working assumption is that Chinese authorities are likely to be unwilling to suffer economic consequences from the actions of the US administration.
The implementation of large-scale fiscal stimulus in China would support Australian export volumes and prices. Australian businesses and consumers may also benefit from access to cheaper Chinese goods as exporters seek to find a new market for much of the 20% or so of Chinese exports which currently flow to the US, and which would be displaced due to tariffs.
At the same time, Deloitte Access Economics now also expects the Reserve Bank of Australia to take out additional insurance to support Australian economic growth, particularly in the context of potentially lower import prices and downward pressure on inflation. An additional 25 basis point reduction in short-term interest rates has been added to Deloitte Access Economics’ forecast for 2025. If realised, that would see the cash rate reduced by 100 basis points through this calendar year, including the cut which occurred in February.
Should Chinese authorities enact fiscal stimulus, and assuming that any further tit-for-tat tariff announcements do not dramatically escalate the situation further, Australia will be as well placed as any country to withstand the short-term fallout.
The potential, long-term implications are a different matter and should be cause for deep concern in Australia. Heightened tensions between the US and China imply a greater risk of threats such as a diminished role for the US dollar and US financial markets in the global economy, the bifurcation of global supply chains, and greater technology competition between major powers.
This newsletter was distributed on 24th April 2025. For any questions/comments on this week's newsletter, please contact our authors
This blog was co-authored by Alex Scaife, Manager at Deloitte Access Economics
Click on the links below to read our previous Weekly Economic Briefings:
