By James Glynn


SYDNEY--The Reserve Bank of Australia is preparing to deal with the fallout resulting from a major international trade war in the coming years, but the central bank's deputy governor, Andrew Hauser, said it's best to avoid prejudging the consequences for Australia.

The impact that higher tariffs around the world will have on Australia's inflation is "ambiguous," in large part because it depends on a far wider set of considerations than the imposition of U.S. trade restrictions alone, Hauser told a meeting of economists on Wednesday.

"Given this uncertainty, it is important that we don't prejudge the implications of tariffs for policy but monitor developments closely and stand ready to respond appropriately as the facts emerge," he said.

The comments come after the RBA was criticized in a recent parliamentary hearing for not being able to show economic modelling covering what higher U.S. tariffs under the new Trump White House would mean for Australia.

In countries imposing tariffs, the aggregate price level will typically rise, increasing measured inflation--at least for a period--as higher import prices work through the system, he said.

"That direct price level effect will not apply in countries that don't impose tariffs, but over time, tariffs--particularly if they are widespread--will impair the supply side of the world economy, disrupting global supply chains and reducing competition," he added.

And that effect, coupled with the potential for stronger overseas stimulus and greater pass-through of any exchange-rate depreciation, will tend to push up on prices in Australia too, Hauser said.

Still, working against this upward pressure will be the downward effects of weaker demand, and the potential diversion of cheaper foreign goods to Australian markets that previously would have been sold in higher tariff countries, he added.

Australia is not expected to be in the direct firing line of U.S tariffs given that it has a trade deficit with the U.S.

Nevertheless, economists warn that Australia's trade surplus with China would be affected if the world's second-biggest economy slows further due to trade disruptions.


Write to James Glynn at james.glynn@wsj.com; @JamesGlynnWSJ


(END) Dow Jones Newswires

12-11-24 0329ET