RBA Deputy Governor Warns of Potential Impact of Trump's Tariffs on Australia's Economy

Andrew Hauser, the Reserve Bank's deputy governor, says Donald Trump's tariff plans could have a profound impact on Australia's economy and it's surprising to see financial markets 'shrug and move on'.

But he said given Trump's tariffs are one of a number of huge changes occurring in the global economy, it could take years to see what their final effects will be.

'The day after Brexit happened, everyone thought the world would end, and it didn't,' Mr Hauser said.

'But 10 years on, you're seeing the profound effects of some of those changes for sustainable growth rates, and for fundamental things in the UK economy that … will have more important and lasting effects than the 'here today, gone tomorrow' problems,' he said.

Andrew Hauser worked at the Bank of England during the economic fallout from Brexit. (AAP: Lukas Coch)

Mr Hauser said it was 'very surprising and puzzling' to witness a meme developing on social media that says 'nothing ever happens' with Trump's tariffs, since enormous macroeconomic changes appear to be happening as we speak.

He said central banks globally were watching Trump's tariff plans 'like hawks,' and RBA staff were very focused on them, but traders in financial markets appeared relatively unconcerned.

'The financial markets, in particular, shrug and move on,' he said.

Trump flags tariffs of 200pc on pharmaceuticals, 50pc on copper Photo shows Donald Trump speaks and holds his hands open while Pete Hegseth, seated next to him, watches. Donald Trump flags a possible 200 per cent tariff on pharmaceuticals — one of Australia's biggest exports to the US — and says copper could be hit with a 50 per cent levy.

'Equity markets are higher today than they were before the 'Liberation Day' events. Measures of implied volatility in markets are back to historic lows. Those are interesting developments.

'You can either be a market believer and say, 'Well, these guys get it right more often than we do, so they must know something we don't,' or you could worry a little bit about that.

'How worried are we about it? We are very, very focused on it. The level of uncertainty is clearly elevated and the implications … for a global trading economy like Australia, of these fundamental changes, are very profound,' he said.

Mr Hauser, who is from the UK, moved to Australia to become RBA deputy governor in February last year.

He previously worked at the Bank of England for more than 30 years — a period of time that coincided with the UK's Brexit debates and economic fallout.

We need a new 'Golden Age' of Australian economic thinking

Mr Hauser made his comments about Trump's tariffs in the Q&A portion of a speech he delivered to the Economic Society of Australia on Wednesday, in Sydney.

In his prepared speech, he said there were so many profound changes occurring in the global economy that the RBA had decided to re-prioritise its research.

He said the 'defining macroeconomic challenges of our age' included the rolling back of free trade, the implications of shifting geopolitical alliances, climate change, and the need to reinvigorate productivity growth globally.

Trade wars, strongmen, and economic chaos. This is a critical moment for Australia Photo shows Road to Rail 2015-11-29 11:11:00 Trade wars, strongmen, and economic chaos. The world has seen this before.

'The bank will be refreshing its research strategy, with a new set of priorities, identifying the big questions that need to be answered to support future policymaking,' he said.

He also issued a 'call to arms' for Australia to do what it could to attract, retain, and grow top economic academic talent and to incentivise economists to work on issues 'of greatest policy relevance to Australia' to help the country navigate the next few decades.

He compared our current historic moment to two major periods from the past when Australian policymakers and economists worked together to solve huge economic problems.

He said the first period stretched from the 20s to the 60s, when Australia pulled itself out of the depths of the Depression and navigated World War II and its aftermath, and the second period covered the major economic reforms of the 80s and 90s.

He said Australia needed a third 'Golden Age' of economic thinking to help us navigate the current moment.

'Can Australian macroeconomic thinking do it again, as the world economy is once more in flux?' he asked.

How can we communicate the urgency of the challenge?

Mr Hauser said since the world was slowly reverting back to a more regionalised, less open, international trading system, coupled with the realities of climate change, Australian economists had fundamental questions to try to answer:

First, how will the composition and geographical location of our export markets change in response to evolving trade policies and geopolitical alliances? What implications will those shifts have for domestic output, investment, labour markets and pricing? And how do we harness our natural and human resources to take advantage of those shifts?

Second, how will global commodity demand change over time? How long will markets for 'traditional' minerals including coal, gas and iron ore — mainstays of the economic model in Australia today — persist? Will markets for 'new economy' minerals and renewable energy sources take their place, and how can Australia best position itself to take advantage of such trends?

Third, how will these and other structural shifts change the sorts of shocks that stabilisation policy, including monetary policy, needs to respond to? How will that influence optimal policy design? And how might we need to adjust our thinking about trade-offs, across the different policy goals and tools available?

He said understanding the macroeconomic risks, and opportunities, from those structural changes in the global economy was 'a vital priority for research' — to protect the economy, and to ensure a clear path for future growth.

Productivity Commission urges Australia to ditch tariffs Photo shows An older man wearing a red tie, white shirt and a black suit jacket with a serious expression The federal government's economic think tank says Australia will likely be a winner from Donald Trump's tariffs if it does not retaliate and that we would be better off by removing more of the nation's remaining tariffs.

He also wondered how to communicate to people how important this moment was.

'What can we do as a community to communicate the urgency of the challenge, to show its importance and draw new talent into this vital work?' he asked.

'Bringing academics, policy economists and policymakers together can help us reach a common understanding of both the problems and the potential solutions.

'It is crucial that both sides — policy and academia — buy in. And we need to focus, as a profession, on how we communicate our thinking.

'As Danielle Wood argued at last year's APS Economist conference, it has never been more crucial for economists to speak directly and plainly,' he said.

He said Australia also had no choice but to respond to the major changes occurring in the global trading environment, given our economy is so reliant on world markets.

'But we can go one better: by marshalling our best brains we can turn this challenging environment to our advantage,' he said.

'At the RBA, we stand ready to play our part in this great endeavour,' he said.