Australian Economy

Lowered US tariffs on China may soothe inflation

It could also backfire by generating increased US demand for imports, and aggravate already stretched global supply chains due to COVID-19 related factory shutdowns.

“China’s support will certainly cushion against a marked slowdown, but may not do much to bolster supply capacity,” said David Plank, head of Australian economics at ANZ.

The rollback of tariffs would reduce US inflation by 0.25 percentage points, according to the Peterson Institute’s estimates.

Reports of China planning $US21 billion in additional tax relief combined with the potential thawing of US-China trade tensions lifted US stocks, the offshore yuan and the Australian dollar.

Chinese policymakers have pledged to step-up support for its economy, hit by COVID-19 outbreaks.

Last week, China cut its benchmark reference rate for mortgages by an unexpectedly wide margin, its second reduction this year, as Beijing seeks to revive the ailing housing sector.

Analysts expect more stimulus and measures to bolster consumption.

The immediate optimism quickly faded, as Beijing reported higher COVID-19 cases, stoking fears of tighter containment measures and slowing economic growth.

China’s zero COVID-19 policy has inflicted considerable damage to its economy.

President Biden and International Monetary Fund chief Kristalina Georgieva both pushed back against fears of an impending economic slump at the annual World Economic Forum.

Ms Georgieva said the IMF is projecting weaker growth for the world than it had anticipated last year, and conceded there was a risk of further downgrades. The IMF’s 3.6 per cent forecast for 2022 is in line with the average in the previous decade.

The Australian dollar slipped 0.5 per cent to US70.78¢, from a top of US71.26¢ overnight. The three-year bond rate dipped 3 basis points to 2.9 per cent and the 10-year yield nudged 1 basis point lower to 3.3 per cent.

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