Trump’s trade war: Reserve Bank deputy boss Andrew Hauser says China ready for fight

There is “striking confidence” in China that the country can win a trade war with the United States, Reserve Bank deputy boss Andrew Hauser has revealed.

The world’s two biggest economies have been locked in a heated dispute since early April, when President Donald Trump announced an enormous tax hike on trade.

Markets panicked and China swiftly responded, forcing the US administration to soften proposals.

Both countries have dialled down the dispute in the past two weeks, setting the clock on 90 days of talks to resolve their differences.

But the fight will especially impact Australia, as China is the country’s top export partner and the US is the biggest foreign investor.

Mr Hauser said China was shocked, but resilient, when he visited the country just days after Mr Trump’s announcement.

“Don’t count China out,” he will tell the Lowy Institute in Sydney on Thursday night — adding that he was not giving his own assessment but rather talking through what he had heard on the ground.

“The eye-popping tariff tit-for-tat escalation in early April came as a genuine shock to most of those we spoke with.

“But for every expression of surprise, we also heard a striking confidence that China was going into this trade war with a strong hand.”

He said China had expected tariffs of between 25 and 50 per cent — yet Mr Trump’s policy briefly surged as high as 145 per cent.

The trade fight was forecast to shave 1.5 to 2 per cent off growth for 2025 in the world’s second biggest economy.

Yet business leaders were confident that the taxes will also severely hurt American business and consumers.

“(There was) a general expectation that a large share of the economic costs of US tariffs would fall on the US itself, and a determination not to cushion that impact,” Mr Hauser said.

“Nearly half China’s exports to the US are products for which the US has limited alternative external suppliers, including lithium batteries, computers, smartphones and video game consoles.”

There were also “real doubts” about manufacturing moving from China to the US.

“Elevated labour costs, and a finite stock of advanced manufacturing skills, were thought to make it impossible to produce many goods at the prices US consumers expected to pay,” Mr Hauser said.

He said there was confidence that China’s government would be able achieve its 5 per cent growth target with stimulus — although he warned it may not be as effective as hoped.