Reserve Bank of Australia (RBA) Deputy Governor Andrew Hauser traveled to Beijing in mid-April, mere days after the United States imposed so-called “Liberation Day” tariffs on Chinese goods averaging 145 percent. His trip came on the heels of Prime Minister Anthony Albanese’s own outreach to President Xi Jinping and reflects the deep economic interdependence between Australia and China. Hauser’s mission was to gather first-hand insights into how Chinese policymakers, businesses and citizens were digesting the latest escalation in Sino-U.S. trade tensions—and he found a prevailing mood of confidence.
China’s “Strong Hand” in Tariff Diplomacy
Striking Confidence Among Chinese Stakeholders
Andrew Hauser told a gathering at the Lowy Institute in Sydney that, despite the steep U.S. levies, “for every expression of surprise, we also heard a striking confidence that China was going into this trade war with a strong hand.” Chinese interlocutors—from factory owners in Shenzhen to mid-level Ministry of Commerce officials—believed the ultimate burden of U.S. tariffs would land squarely on American consumers. Many in China were unprepared to provide significant subsidies or currency devaluation to shield their exporters, reasoning that “not cushioning that impact” would force Washington to reconsider its approach.
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Limited Alternative Suppliers Give China Leverage
A key insight underpinning China’s confidence is its dominance in critical advanced-manufacturing sectors. Hauser displayed a quadrant chart showing that nearly half of China’s exports to the U.S. consist of products for which the United States lacks alternative suppliers—namely lithium-ion batteries, semiconductors, smartphones, laptop computers and video game consoles. With few viable replacements, he explained, “the pass-through of U.S. tariffs to American consumer prices for such goods is likely to be high—perhaps explaining why many were quickly exempted from the tariffs.”
Diversion to Other Markets
Even in categories where the U.S. is not China’s sole outlet, exporters were confident they could redirect shipments to Europe, Southeast Asia or Australia. Hauser noted that this flexibility further blunted the impact of U.S. tariffs, allowing China’s manufacturing sector to maintain high factory utilization and preserve economies of scale.
Barriers to “Onshoring” U.S. Manufacturing
Chinese stakeholders doubted that U.S. companies could or would move large-scale production out of China in response to tariffs. Elevated labor costs, skill shortages and the fracturing of Asia’s highly integrated supply chains make such a move prohibitively expensive—and economically unsustainable at the price points American consumers expect. Hauser quoted several executives who warned that the “volatility of U.S. policy settings” deterred new factory investments on American soil.
Currency Intervention Unlikely
Contrary to some public speculation, there was little expectation in Beijing that China would purposefully devalue the yuan to offset U.S. levies. Hauser reported a widespread consensus that devaluation would merely shift the cost burden back to American buyers, countering the intended effect of the tariffs and potentially undermining China’s broader strategic aims.
Implications for Australia’s Economy
China as Australia’s Top Trading Partner
Of all the global trends shaping Australia over the past half-century, Hauser emphasized, none has been more profound than the long swing toward Asia and, in recent years, toward China specifically. Beijing now accounts for roughly 30 percent of Australia’s total exports—far more than any other destination. Iron ore, liquefied natural gas, education and tourism revenues all hinge on steady Chinese demand.
Monetary Policy Under the Shadow of Trade Tensions
Given this dependency, Hauser argued that uncertainty in U.S.-China relations is a direct input into the RBA’s deliberations on interest rates. The bank’s primary mandate—to maintain price stability while supporting full employment—requires a granular understanding of global demand for Australia’s exports and the potential for external shocks. Any protracted slowdown in China fueled by trade restrictions could weaken Australia’s terms of trade, dampen growth and complicate the RBA’s trajectory for further rate cuts.
The Broader Global Economic Outlook
A Two-Way Street of Uncertainty
While much attention has focused on how U.S. tariffs might weaken Chinese exports, Hauser reminded his audience that American consumers—especially lower- and middle-income households—could see sharply higher prices for electronic goods and electric vehicles. This two-way dynamic creates a toxic feedback loop of slower growth, weaker investment and heightened market volatility.
De-Escalation Signals, But Risks Remain
Since Hauser’s return, both Washington and Beijing have shown tentative signs of de-escalation, granting temporary exemptions to certain Chinese inputs and hinting at a renewed dialogue. Nonetheless, the deputy governor cautioned that the underlying structural competition over critical technologies—5G networks, renewable energy components and artificial intelligence hardware—remains unresolved. He warned that markets, policymakers and businesses must prepare for “fits and starts” in trade policy far into the future.
Reactions From Canberra and Beyond
Government Officials Stress Stability
Australian Trade Minister Richard Marles publicly welcomed Hauser’s insights, stating that “understanding China’s confidence gives us a better foundation for our own trade diversification strategy.” Treasury Secretary Steven Kennedy echoed the sentiment, noting that economic resilience will require strengthening ties with other Indo-Pacific partners, including India, Japan and ASEAN nations.
Business Community Urges Vigilance
Key industry groups, such as the Minerals Council of Australia and the Australian Chamber of Commerce and Industry, called for the RBA to remain vigilant. “Global trade tensions can pose significant headwinds,” said MCA CEO Tania Constable. “We need flexible monetary settings and proactive investment in logistics and infrastructure to stay competitive.”
Opinion Divided Among Analysts
Economists at major banks offered mixed reactions. Commonwealth Bank’s chief economist, Gareth Aird, argued that “China’s brewing confidence underscores our long-standing view that Chinese demand will stay robust—even if growth moderates.” By contrast, ANZ Banking Group’s Bernard Doyle warned that “complacency is dangerous. If China does ultimately relent on cushioning its exporters, Australian commodity prices could face a sudden shock.”
Looking Ahead: What Comes Next?
July Review and Rate Cut Prospects
Financial markets are now pricing in roughly a 50-percent chance of an RBA rate cut at its July board meeting. Hauser’s testimony reinforces the idea that the central bank will weigh global trade developments alongside domestic inflation and labor data when setting policy.
Negotiations on the Horizon
With U.S. Trade Representative Katherine Tai slated to visit Beijing in June, and Chinese Vice Premier Liu He expected in Washington by August, observers hope that high-level engagement can stabilize the relationship. Australia has offered to facilitate back-channel discussions, reflecting its unique position as both a close U.S. ally and a partner to China.
Strategic Imperative for Diversification
In Canberra, policymakers are increasingly focused on “de-risking” Australia’s trade portfolio. This means fast-tracking free-trade talks with the United Kingdom and renegotiating aspects of the Indonesia–Australia Comprehensive Economic Partnership Agreement. Agriculture and services sectors are earmarked for targeted support to open new markets in the Gulf and Latin America.
Conclusion
Andrew Hauser’s on-the-ground observations in China provide an unusually candid window into how Beijing perceives its leverage in a high-stakes trade confrontation with the United States. Far from appearing rattled, Chinese officials and businesses displayed a palpable confidence in their ability to withstand U.S. tariffs—grounded in technological leadership, market diversification and a reluctance to devalue the yuan. For Australia, this means that the RBA must continue to monitor global trade tensions closely as it calibrates its monetary stance, while Canberra accelerates efforts to broaden its economic partnerships. In a world of strategic competition over critical supply chains, Hauser’s message is clear: understanding the mindset of China is indispensable to safeguarding Australia’s economic prosperity.
