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US President Donald Trump has announced a 90-day pause on “reciprocal” tariffs, meaning that many countries that received these tariffs will now be subject to a 10 per cent US import tariff for the next three months.
Countries such as Australia that were hit with “baseline” 10 per cent tariffs (which took effect on 5 April 2025) will remain in place for this 90-day period. This also includes Brazil, Britain, and Colombia.
Meanwhile, the US and China’s tit-for-tat trade conflict has escalated further after China’s 84 per cent retaliation to Trump’s tariffs.
Prior to 10 April, Trump imposed a 104 per cent tariff on Chinese goods, which were comprised of a baseline 10 per cent tariff, a 20 per cent-imposed rate, a 34 per cent reciprocal tariff, and a 50 per cent retaliatory change.
Now, this 104 per cent tariff has shot up to 125 per cent in retaliation to China’s 84 per cent duty.
With drastic developments happening almost daily, it can be difficult to ascertain what this might mean for Australia domestically, particularly in relation to the Reserve Bank of Australia’s (RBA) movements in the upcoming May monetary policy meeting and beyond.
Be that as it may, economists and markets have determined that the RBA will almost certainly cut the cash rate further in the May meeting; however, it is unclear by how much given these recent developments.
ANZ’s economics team in its Monthly Wrap for April (released 10 April), noted the significant changes to the post-meeting statement following the RBA’s April meeting that read that the US tariff announcements “are having an impact on confidence globally and this would likely be amplified if the scope of tariffs widens, or other countries take retaliatory measures”.
“Given the likely impacts on global growth and sentiment from US tariff announcements, we now expect the RBA to cut the cash rate by 25 bps at each meeting in May, July and August. This will take the cash rate to 3.35 per cent,” it said.
However, NAB group chief economist Sally Auld and head of Australian economics Gareth Spence revealed a bolder statement on 10 April, predicting the RBA to ease “more quickly” through mid-2025, leaving the cash rate at 2.6 per cent by February next year.
“We expect the RBA to cut by 50 bps in May, following by 25 bps in July, August, November and February,” Auld and Spence said.
“Headwinds from the global environment have intensified, but error bounds around our forecast are large given uncertainty remains exceptionally elevated.”
Diana Mousina, deputy chief economist at AMP, said on 9 April that while Australia has been “a relative laggard” in the rate-cutting process due to inflation taking longer to decline, rates are likely to fall further this year and “the growth threat from tariffs increases the need for rate cuts”.
“We expect the cash rate to decline to 3.6 per cent by the end of this year and to end the cutting cycle at 3.1 per cent. This is higher than average interest rates in the decade prior to COVID,” Mousina said.
“But the large falls in global sharemarkets from US tariffs and the potential hit to global growth means that larger and faster rate cuts could occur in coming months and a 50 bps rate cut can’t be ruled out at the May meeting.”
[RELATED: Central banks must ‘tread carefully’ following tariff shocks]
