Even if Australia is exempted from US President Donald Trump's tariffs, the indirect impact of a global trade war on the domestic economy is likely to be larger than any imposts on exports.
With steel and aluminium exports to the US making up just 0.03 per cent of Australia's GDP, the 25 per cent tariffs signed by Mr Trump on Tuesday AEDT would have a "trivial" macro-economic impact, AMP chief economist Shane Oliver said.
"While it would be horrible for the affected industries ... the main threat to Australia would come via Trump's tariffs leading to less global trade and a hit to Chinese and global GDP, weighing on demand for our exports and hence our GDP," Dr Oliver said.
The trade war has arguably added to the risk of a recession but the impacts would likely be offset by other things, such as tax cuts and deregulation in the US, along with central bank rate cuts and lower currencies in other countries.
"If we are right and the average US tariff rate is capped below 10 per cent of US imports, then the hit to global and Australian economic growth should be contained to around 0.5 per cent, which is not enough to drive a recession," Dr Oliver said.
He said the downside threat to growth posed by the tariffs outweighed the upside threat to inflation, so added to the case for the Reserve Bank of Australia to cut interest rates next week.
NAB senior economist Taylor Nugent did not expect the tariffs to have much of a bearing on the RBA's policy making until and unless a negative impact to growth becomes more obvious.
The Australian dollar has fallen against the greenback as a result of the tariff threats, which would act as a shock absorber to lowering global demand for Australian exports by making them more price competitive.
However, a weaker Australian dollar could also result in greater imported inflation, as the relative cost of overseas goods increases.
"While the depreciation of the Australian dollar is putting some upward pressure on inflation, the prospect of trade diversion in global manufacturing capacity is a competing force that may ultimately prove disinflationary," Mr Nugent said.
ANZ commodity strategists Daniel Hynes and Soni Kumari did not expect a big impact on Australian steel exports to the US, but the tariffs could weigh on China's steel exports and weaken iron ore demand.
Treasurer Jim Chalmers said his department had modelled the impacts of potential US tariffs on the Australian economy directly and as a result of a trade war between the US and China, but not the specific implications of a 25 per cent tariff on steel and aluminium.
"We're confident that we can navigate them," Dr Chalmers told reporters.
"We are well placed and well prepared to deal with announcements coming out of D.C., and part of that effort is engaging directly, as the prime minister has this morning, with President Trump."
