Source : the age
Donald Trump’s global tariff war and the uncertainty he has unleashed on the world will cost the Australian economy more than $13 billion this year and put upward pressure on inflation, the International Monetary Fund has warned.
In a wake-up call to Anthony Albanese and Peter Dutton about the economic headwinds fanned by Trump’s policy agenda, the IMF this evening said the global economy had entered a new era, with America and China to bear the brunt of a substantial slowdown in growth over the next 18 months.
Donald Trump’s tariff plans could cost the Australian economy $13 billion in lower growth, and his own economy more than $1 trillion.Credit: Bloomberg
The Australian economy, which in January the fund had forecast to expand by 2.1 per cent this year, is now expected to grow by 1.6 per cent. Through 2026, growth has been revised down slightly to 2.1 per cent from January’s forecast of 2.2 per cent.
Inflation has been revised up for this year to 2.5 per cent from 2 per cent, but remains within the Reserve Bank’s target band. Financial markets are expecting the bank to slice the official cash rate by a quarter percentage point to 3.85 per cent at its mid-May meeting.
Almost all the reduced growth, worth $13 billion this year and $16 billion by 2026, is due to Trump’s tariffs and the uncertainty they have created across the global economy.
Despite the hit, Australia is expected to remain one of the fastest-growing major economies in the developed world this year and next.
Americans will pay a large price for Trump’s policies, with the IMF downgrading growth for the world’s largest economy by 0.9 percentage points this year and by another 0.4 percentage points in 2026. In dollar terms, the cumulative hit to the US economy is more than $650 billion.
Inflation is also expected to be up to 0.8 percentage points higher.
The blow to China will be smaller, but the IMF is still expecting Trump’s tariffs to deliver a 1.3 percentage point hit to growth. This will be offset by more spending by Chinese authorities, which is expected to reduce the overall reduction in growth to 0.6 percentage points.
The fund’s chief economist, Pierre-Olivier Gourinchas, said the way the global economic system and most countries had operated for the past 80 years was being reset, driven by Trump’s policies which were taking US tariff levels beyond levels last experienced during the Great Depression.
That reset would come at a substantial cost.
“If sustained, this abrupt increase in tariffs and attendant uncertainty will significantly slow global growth,” he said.
“Risks to the global economy have increased, and worsening trade tensions could further depress growth.”
The IMF noted that even if Trump retreated, the damage caused by his tariff policies would endure.
It found even after the president halted most of his tariff increases for 90 days, the huge imposts on Chinese-produced goods would drive up prices to American consumers, leaving both average tariffs and “policy-inducted uncertainty” at elevated levels.
The IMF is expecting a slowdown in trade, particularly between the US and China, as President Trump’s tariffs take effect.Credit: AP
Gourinchas, who bemoaned many politicians had embraced a “zero-sum world view” of winners and losers, admitted that some of the complaints – particular about the pain felt by manufacturing communities – were legitimate.
“In many advanced economies, there is an acute perception that globalisation unfairly displaced many domestic manufacturing jobs. There is some merit to these grievances, even if the share of manufacturing employment in advanced economies has been in a secular decline,” he said.
Any slowdown in the domestic or global economy will weigh on tax revenues, with both the government and Coalition facing substantial budget deficits over the rest of the decade. Final costings of their respective promises are not expected until late next week.
Early in the campaign, the federal Treasury estimated Trump’s tariff plan, and countermeasures put in place by China, would reduce Australian economic growth by 0.1 per cent and increase inflation by 0.2 per cent.
Treasurer Jim Chalmers said the fund’s report showed trade tensions were weighing heavily on the global outlook and putting upward pressure on inflation around the world.
He accused the Coalition of offering a policy agenda that would leave the country more vulnerable to global economic uncertainty.
“We’re not immune from the turmoil in the global economy but the progress we’ve made together puts us in good stead,” he said.
“The choice at this election is between responsible economic management and stability under Labor or harsh cuts and mismanagement under Peter Dutton and the Liberals.”
But shadow treasurer Angus Taylor said the government had left Australia unprepared for a trade war and weaker economic growth.
He said Australians should be alarmed by the downgrade in forecast economic growth.
“Strong and decisive economic leadership is needed to secure Australians’ jobs, retirement savings and hopes of home ownership,” he said.
