Westpac Sees Little to No Effect on Consumer Spending to Date From US Tariffs

The escalating U.S. tariff war has triggered global economic jitters, yet Australia’s consumer spending landscape remains remarkably unscathed. Westpac’s recent analysis underscores that while the U.S. faces significant inflationary pressures and household financial strain, Australia’s economy has so far weathered the storm, buffered by its strategic trade ties and China’s economic resilience.

The U.S. Consumer Suffers, Australia Stays Steady

The U.S. has borne the brunt of its own trade policies. show a sharp spike to 22.5% in 2025—the highest since 1909—driving a 2.3% short-term rise in consumer prices. This translates to an $3,800 annual loss per household, with lower-income groups disproportionately affected. Apparel prices surged by 17%, food costs jumped 2.8%, and new car prices rose 8.4%, eroding purchasing power.

In contrast, Australia’s consumer spending has shown remarkable resilience. Westpac’s Westpac-Melbourne Institute Consumer Sentiment Index dipped to 82.7 in July 2024 but remains within a “stable range,” faring better than feared.

. While sentiment remains fragile, labor market stability and fiscal support measures have mitigated deeper declines.

Why Australia’s Economy is Insulated

Westpac attributes Australia’s resilience to three key factors:
1. Minimal Direct Exposure: U.S. tariffs account for just 1% of Australia’s GDP, with trade flows skewed toward commodities exported to Asia.
2. China’s Stimulus Buffer: As Australia’s largest trading partner, China’s projected 5.0% GDP growth in 2025—despite U.S. tariffs—will sustain demand for Australian exports. China’s capacity to redirect trade flows (e.g., rerouting U.S.-bound goods to Australia) could further ease domestic inflation.
3. Policy Flexibility: The Reserve Bank of Australia (RBA) retains tools to stabilize growth. Westpac forecasts three 25-basis-point rate cuts in 2024, with the next expected in May, easing borrowing costs and supporting consumer demand.

The Global Trade Chessboard

While Australia navigates trade tensions with relative ease, the U.S. faces structural challenges. The Peterson Institute estimates that a broad-based 10% U.S. tariff would shave 0.6% off U.S. GDP over three years, while Mexico and Canada suffer steeper declines (2.3% and 3.4%, respectively). Meanwhile, reveal Beijing’s resolve to offset tariff costs through domestic stimulus, a stark contrast to Washington’s constrained fiscal capacity.

Risks Lurking in the Shadows

Optimism must be tempered. Prolonged trade uncertainty could erode business investment, with global supply chains remaining fragile. The IMF warns that confidence effects—such as delayed spending and hiring—could amplify over time. Additionally, Australia’s trade surplus has shrunk as commodity prices normalize, signaling vulnerabilities if China’s growth falters.

Conclusion: Navigating the Tariff Landscape

Westpac’s analysis paints a cautiously optimistic picture for Australian investors. With China’s growth engine humming and the RBA’s easing cycle intact, consumer spending is expected to grow near trend levels in 2025, even as U.S. households grapple with higher costs. Strategic sectors to watch include commodities (Australia’s export backbone) and financials (e.g., Westpac itself, ASX:WBC), poised to benefit from stable domestic demand.

However, investors must remain vigilant. While tariffs have yet to derail Australia’s economy, geopolitical risks and global inflation remain wildcards. As Westpac’s Elliot Clarke notes, “The interplay between trade realignments and consumer confidence will define the next phase.” For now, Australia’s resilience offers a compelling contrast to the U.S. — a lesson in the power of diversification and policy agility in turbulent times.