Aussie firms in China were upbeat post-Liberation Day, RBA deputy says

RBA deputy governor Andrew Hauser recalled how Australian firms operating in China reacted to the US Liberation Day tariff announcements in a speech to the Lowy Institute on Thursday.

“What really struck me … was how upbeat most, if not all, of the firms were about the outlook for their businesses,” Hauser said, recalling his trip to Beijing in April.

“The recovery in sentiment in early 2025, and confidence that the authorities would ‘do what it takes’ to sustain the economy was part of it. But there was also a sense that recent developments in trade policy could enhance their competitive position in Chinese markets.”

On 2 April, the Trump administration imposed sweeping ‘reciprocal’ tariffs on nearly every country in the world, which were toned down significantly in subsequent weeks.

Large tariffs were retained on China, resulting in a tit-for-tat trade war which culminated in 145 per cent US tariffs on China and 125 per cent Chinese tariffs on the US, which were reduced in a 90-day pause from mid-May.

Even in the context of high tariffs, Australian firms saw few threats to the competitiveness of their products, Hauser said. For example, producers had strong beliefs that Australian iron ore had strong scale and cost advantages relative to other producers, at least in the near term.

This belief was echoed by Ben Udy, lead economist at Oxford Economics Australia.

“Australia is one of the cheaper producers of iron ore globally, and so to the extent that China reduces its demand for iron ore, it's likely to cut its demand for iron ore from other exporters before it stops buying from Australia,” Udy told Accounting Times in April.

Hauser said that Australian producers expected Chinese steel output to remain relatively robust, as a large majority of Chinese steel was consumed domestically, and demand has been sustained by a pivot from property-related uses to manufacturing and infrastructure in recent years.

He also noticed that the Liberation Day tariffs had come as a genuine shock to people in China in terms of scale, speed and scope.

Chinese producers had typically expected tariffs to reach anywhere between 25-50 per cent, with anything over 60 per cent seen as an effective embargo. The peak US tariff rate of 145 per cent skyrocketed past these expectations.

They were also shocked by the swiftness of the tariffs and the lack of negotiation before their imposition.

Regardless, Hauser noticed a sense of confidence that the Chinese economy was going into the trade war with a strong hand. People in China generally expected that the lion’s share of the costs of US tariffs would fall on the US itself.

The 90-day tariff pause between China and the US had “walked us back from the precipice a little,” Hauser said, although tariff levels remained elevated compared to historical levels, and future hikes could not be ruled out.

For now, RBA forecasts have predicted that the tariffs would not impose significant damage on the Chinese economy.

Hauser said China’s strong negotiating position and scope to inject further stimulus had meant that RBA projections for Chinese GDP growth had only modestly changed in comparison to three months ago.

He underscored China’s economic importance to Australia, being our top export destination by a large margin. Because of this, the US-China trade war has become a significant point of consideration in the RBA’s decision making.

“Of all the trends shaping the Australian economy over the past half century, one of the most profound has been the long swing towards Asia and, more specifically in recent years, China – now our biggest single trading partner by a country mile,” Hauser said.

“But China is also front and centre in the US administration’s rapidly evolving tariff strategy. How that strategy plays out, and how China responds, are therefore key issues for the economic outlook in Australia, and hence the RBA’s monetary policy.”