By James Glynn
SYDNEY--Australia's central bank is relatively upbeat on China's ability to weather a trade war with the U.S., saying the country is prepared to "face into" the challenge while highlighting its ability to stimulate activity and determination to hit growth targets.
The observations come from the Reserve Bank of Australia's deputy governor, Andrew Hauser, who was in China in early April just as Washington imposed tariffs on its trading partners, with China singled out for the harshest treatment.
China is Australia's biggest trading partner by far, and any change in the outlook there will immediately have consequences for Australia's economy.
Hauser said there was broad-based confidence among the business leaders he met in China about the country's strong negotiating position in the trade war.
The optimistic mood was linked to the widely-held view that the economy had started turning a corner in January, with the recovery fueled in part by fiscal stimulus announced in 2024.
"An improvement, if it persists, would itself be an important economic development, after such long period in the doldrums," Hauser said in a speech Thursday.
Secondly, there's a deep belief in the government's commitment to deliver the country's stated annual growth target of around 5%.
"The commitment to the goal had a seemingly totemic status amongst most of those we spoke with," Hauser said.
There is a general expectation that a large share of the economic costs of U.S. tariffs would fall on the U.S. itself, and there "was a determination not to cushion that impact," Hauser added.
The inflationary impact of U.S. tariffs on U.S. consumers could be reduced if the Chinese currency were devalued substantially, but there was little support for this idea, he said.
"We detected little expectation that this will happen because China would want to avoid insulating the U.S. from its own tariffs," Hauser said.
Still there was a recognition that Chinese exporters would face real economic costs if high tariffs persisted, he added.
"It was too early to see any of that at the time of our visit. But we did hear a determination to face into if it came," Hauser said.
The recent de-escalation of trade tensions is a further reason for optimism about China, he said.
Given China's seemingly strong negotiating position and its scope to inject further stimulus, the RBA is forecasting that the economy will grow by 4.8% in 2025 and 4.4% in 2026.
Australian companies are also actively seeking opportunities to boost trade with China amid the breakdown in trade relations with the U.S.
"What really struck me was how upbeat most, if not all, of the firms were about the outlook for their businesses," he said.
"The recovery in sentiment in early 2025, and confidence that the authorities would do what it take to sustain the economy was part of it," he said.
Write to James Glynn at james.glynn@wsj.com
(END) Dow Jones Newswires
May 22, 2025 04:49 ET (08:49 GMT)
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