Tariff impact will be ‘modest’ for Australia: UBS

By Jessica Yun
 — 1 minute read

The first round of US/China tariffs will have “relatively modest” impact on Australia — but it may be a different story if trade tensions continue to escalate, according to UBS.

In a recent report, UBS analysts declared that the US’ announcement of a further 10 per cent tariffs on $200 billion worth of Chinese imports was a “material escalation of trade tensions”.

So far, US and China have imposed 25 per cent tariffs on $34 billion worth of goods upon each other, which kicked in on Friday, 6 July.


But the US administration has also threatened other sets of tariffs, all of which would come to $250 billion if added together.

“While we are still not facing an all-out trade war, it can no longer be dismissed and we are certainly moving towards an escalation of trade tensions,” the report said.

China represents Australia’s largest export destination, accounting for 6.5 per cent of Australia’s GDP.

Higher tariffs would raise the cost of trade, concurrently lower trade volumes as well as related industrial production and commodity demand, the report said.

“So a material slowdown in Chinese growth could flow through to Australia through the exports channel.

“However, the first round direct impact of rising tariffs should be relatively modest.”

But according to the report, this would depend on three conditions: that “the AUD responds lower to ‘risk-off’ and commodity prices”; that US’ tariffs continued to be targeted, for example, at electronics; and that “Chinese policy responds to support domestic activity to at least partly offset the tariff impact, via easing of tight credit and  boosting funding for infrastructure”.

Indeed, a full-blown trade war would be “far more negative”, with investor confidence and investment likely bruised by weaker exports.

“Overall, we expect little impact on Australia from the current trade escalation scenario and so maintain our long-held GDP forecast of 2.8 per cent for 2018 and 2019.

“If, however, tensions escalated to an all-out trade war, leading to a ~1 per cent slowdown in global growth, it’s unlikely that Australia would escape the second round impacts as they reverberate around the global economy,” the report concluded.

Tariffs "too small to have a discernible impact": NAB

NAB senior economist, international Tony Kelly echoed UBS' comments and said the current tariff measures, which only subsumed around 3 per cent of US imports, were "too small to have a discernible impact".

"However, if all the measures currently being threatened were put in place (which would amount to an increase in the average tariff rate of over 5ppts), and led to retaliatory tariff measures by affected countries, the impact would be noticeable," Mr Kelly wrote in a note about US economics.

"Moreover, in an environment of retaliation and counter-retaliation, it is unclear where the process would stop."

But even before any other tariffs came into effect, Mr Kelly added that markets could experience disruption and declining consumer or business confidence.



Tariff impact will be ‘modest’ for Australia: UBS
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