Look through the tariff turmoil, says Westpac economist

Liam Cormican
01:45pm April 07 2025

US President Donald Trump’s recent tariffs are unlikely to have a material adverse impact on Australian growth and inflation through trade, says Westpac head of international economics Elliot Clarke. (Unsplash)

Australia’s economy remains well positioned to grow near trend this year and next despite short term market volatility following US President Donald Trump’s “liberation day”.

That’s the view of Westpac head of international economics Elliot Clarke who says Donald Trump’s recent tariffs are unlikely to have a material adverse impact on Australian growth and inflation through trade.

Westpac Economics has also maintained their Australian cash rate forecasts despite the tariffs. They anticipate rate cuts once per quarter through to the end of this year, with the next cut expected in May.

“Australia is getting goods primarily from China – if anything, we might see output that would have gone to the US come here instead,” he said. This would help ease lingering inflation pressures.

While short term effects are being felt in the Australian market, including the Australian dollar falling below 60 cents, Clarke believes local confidence will come back over the next 6 months or so.

“Support for the Australian dollar should firm up following the immediate confidence shock that we are feeling currently.”

While Trump may raise the stakes further in coming months, Clarke says, it’s the US that has “limited tolerance” to weather these uncertainties compared to other major economies like China and Europe.

“We’re likely to see Asia come together more with some good commercial cooperation between China, Japan and Korea,” he said.

“Major governments and central banks across the region also have capacity to stimulate to support domestic activity and confidence. China – Australia’s largest trading partner – is able to fully offset the economic costs of the 54% tariff imposed by the US and still achieve its goal of 5.0 per cent GDP growth in 2025.” 

In stark contrast according to Clarke, even with US growth looking at risk of stalling or turning negative, the US will need to keep monetary policy restrictive for the foreseeable future given the inflationary effect of tariffs on US consumer prices.

On Friday, Federal Reserve Chair Jerome Powell made clear the US central bank must take actual and expected inflation into consideration as well as the cost to growth, and that both will only be fully known in time. 

To make matters worse, the US also has “little-to-no capacity” to fund a material increase in government investment in infrastructure which would reduce inflation risks and boost growth.

Liam Cormican

Liam is a reporter for Westpac Wire. He previously served as a financial journalist for Money Management and as a regional journalist in Nowra for Australian Community Media.

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