RBA boss Michele Bullock says inflationary effect of Trump protectionism could hinge on China reaction

Reserve Bank of Australia boss Michele Bullock says the inflationary effect of Donald Trump’s looming presidency will depend on how many of his promised policies he gets to implement.

Quizzed about the effects of radical policies that include a 60 per cent tariff on China’s goods, the RBA governor endorsed her senior market lieutenant’s view that a lot will depend on any reaction from Australia’s biggest trading partner, China.

“It’s not easy to dissect what’s going to happen with all of this,” Ms Bullock said. ”It might be inflationary in some ways. But it might be deflationary in the other ways — if China ends up badly affected by this, that badly affects us.”

She said his presidency might not mean “a hell of a lot for us” if he “does a few things”.

Ms Bullock made the comments at a Senate economic committee on Thursday in response to questions by Greens senator Nick McKim, who had described Mr Trump as an “economic extremist” and “unstable wrecking ball” pushing highly protectionist policies.

She and her financial markets deputy Christopher Kent rejected suggestions they had models that could generate forecasts about what could happen under Mr Trump’s presidency.

Mr Kent said he was aware of the thinking about the effect of Mr Trump’s threatened 60 per cent tariff and how it would work its way through the Chinese economy.

He said the Chinese Government had already unveiled plans for more fiscal stimulus — but they may have been holding off on releasing the scale and direction of the boost because of the prospect of Mr Trump being elected.

“Part of what matters for us is what the Chinese authorities might do in response — and we don’t know,” Mr Kent said.

“There can be offsetting things, and the net effect may be not so much for our economy as a whole.

“But we don’t know, and markets don’t know.”

Ms Bullock said the RBA’s modelling was more complex than just putting in a series of potential inputs and then coming up with some results about the effects on inflation and interest rates.

“It’s not that simple,” she said. “We do need to make sure that we take into account the fact that some things might be reactions.”

“We don’t know what’s going to happen. He says he’s going to do certain things. He doesn’t come in, he doesn’t actually take up duties until next year.

“We’ll wait and see what’s going to happen.”