The treasurer backs Reserve Bank assurances the domestic economy is well-placed to deal with shockwaves from Donald Trump’s tariffs.

The central bank’s governor Michele Bullock tried to allay concerns in a speech on Thursday night after a week of economic tumult, while noting it was too early to gauge how the tariffs would affect interest rates.

Treasurer Jim Chalmers said while it was normal for Ms Bullock to be cautious with her words, there was optimism about how Australia would manage the economic impacts.

“The reassuring tone that the governor struck last night is welcome and it’s warranted, because we are in good stead in Australia,” he told ABC Radio on Friday.

“Our institutions and our systems are strong. They’re robust, as the governor said … our economy has turned the corner, even as the global economy is taking a turn for the worse.”

Ms Bullock said while there was uncertainty, the situation was not a repeat of 2008 in the lead-up to the global financial crisis.

The Reserve Bank is monitoring financial conditions at home and abroad ahead of its next interest rate decision on May 20, weeks after the May 3 federal election.

Dr Chalmers is set to talk to his South Korean counterpart on the trade implications of the US president’s decision, following a similar discussion on Thursday with UK Chancellor of the Exchequer Rachel Reeves.

While he said there were limits to what could be agreed to in the trade talks – due to the government being in caretaker mode for the election – the treasurer said it was critical to engage with regional allies.

“We want to make sure we’re still conferring, we’re still comparing notes, we’re still coordinating efforts in pretty extraordinary times,” he said.

Prime Minister Anthony Albanese said the timing of the election may impact deal-making on the US tariffs, but efforts to negotiate continue.

“(Caretaker mode) is a factor, that’s just a reality, but it doesn’t mean we can’t continue to engage and we are continuing to engage with the United States on a daily basis,” he told reporters in Darwin on Friday.

“We believe that reciprocal tariffs on Australia should be zero.”

Amid soaring financial market uncertainty, traders remain on edge and the US volatility index is at a five-year high.

Australia is not immune to financial shocks from the US.

While Mr Trump was prepared to ride out falls on equity markets, he couldn’t afford to look through a surge in bond yields raising the price of government debt, IG markets analyst Tony Sycamore said.

As the risk rose of an economic downturn and hedge funds got squeezed, investors bailed from US government debt – something Mr Trump couldn’t ignore.

“The bond market is hugely, hugely important. It governs all the other markets,” Mr Sycamore told AAP.

“He realised that he risked causing some very significant damage to the US economy, to the plumbing, to the liquidity, and I believe that was the catalyst for him to change tack.”

Mr Trump acknowledged those concerns after his decision to pause tariffs on multiple countries for 90 days. The tariff on goods imported from Australia is 10 per cent, outside the 25 per cent on steel and aluminium.

“The bond market right now is beautiful,” he said.

“I saw last night where people were getting a little queasy.”

Any relief rallies were likely to be short-lived, Brown Brothers Harriman strategists Win Thin and Elias Haddad said.

“The pervasive uncertainty created by continuously changing US tariff threats and escalating US-China trade war remain a major drag to the global economy,” they said.

Jacob Shteyman and Andrew Brown
(Australian Associated Press)